IR35 for IT contractors

[rookiecontractor]

So as suggested by someone in another thread , I did read up on IR35 and how it applies to me as an IT contractor. Considering all the facts, I don't think I can be outside of IR35 since the control and substitution clause doesn't apply in my situation. Was just wondering if any IT contractor think otherwise?

I also don't understand why are there so many doomsday warnings about it. Well we lose the dividend/salary breakdown and end up paying more taxes but you are still writing off the expenses which lowers your income. Not to mention that the contracting rate in IT are way more than the salary. So it is still better than being an employee. Am I missing something here?

[SlipTheJab]

So as suggested by someone in another thread , I did read up on IR35 and how it applies to me as an IT contractor. Considering all the facts, I don't think I can be outside of IR35 since the control and substitution clause doesn't apply in my situation. Was just wondering if any IT contractor think otherwise?

I also don't understand why are there so many doomsday warnings about it. Well we lose the dividend/salary breakdown and end up paying more taxes but you are still writing off the expenses which lowers your income. Not to mention that the contracting rate in IT are way more than the salary. So it is still better than being an employee. Am I missing something here?

Nope (unless your PS in which case no expenses). If inside go brolly.

[chopper]

Employees get paid sick and paid holiday; employees get pensions paid on top of their salary; employees of more than 2 years standing get redundancy pay. Decent places also give employees a benefits package on top of their salary (maybe some dental insurance, health insurance, death in service benefit). It is far harder for a firm to ditch an employee at the drop of a hat - notice is needed and reasons need to be from a very narrowly defined set of reasons.

The IT Contractor has to pay for all that out of his daily rate.

[malvolio]

Employees get paid sick and paid holiday; employees get pensions paid on top of their salary; employees of more than 2 years standing get redundancy pay. Decent places also give employees a benefits package on top of their salary (maybe some dental insurance, health insurance, death in service benefit). It is far harder for a firm to ditch an employee at the drop of a hat - notice is needed and reasons need to be from a very narrowly defined set of reasons.

The IT Contractor has to pay for all that out of his daily rate.

Plus a lot more. No technical training for free, you pay for it yourself. Training outside your speciality is not tax deductible. No career progression unless you are very lucky or very good. You will be working away from home or at inconvenient locations for long periods. Your next contract is dependent on what you've done in the last 2-3 years; everything else will be ignored. You get paid for probably no more than 160 days a year, not 365. And, as often as not, people who are not contractors and not as good as you and cannot do what you can will look down on you as the hired help.

Specifically IR35 also reduces your net income by 35% or so, and kills your opportunity to park money to use when you are between gigs or need some time off. It is unfair and unjustified and a thoroughly bad law. However, we are stuck with it.

[rookiecontractor]

Specifically IR35 also reduces your net income by 35% or so, and kills your opportunity to park money to use when you are between gigs or need some time off. It is unfair and unjustified and a thoroughly bad law. However, we are stuck with it.

I agree with that. A fair system would normalize the earnings of a limited company owner over a period of time say 3 years or account for transition time. IR35 reduces incentives to take risk and start on your own. America is way better in this regard.

[northernladyuk]

So as suggested by someone in another thread , I did read up on IR35 and how it applies to me as an IT contractor. Considering all the facts, I don't think I can be outside of IR35 since the control and substitution clause doesn't apply in my situation. Was just wondering if any IT contractor think otherwise?

I also don't understand why are there so many doomsday warnings about it. Well we lose the dividend/salary breakdown and end up paying more taxes but you are still writing off the expenses which lowers your income. Not to mention that the contracting rate in IT are way more than the salary. So it is still better than being an employee. Am I missing something here?

The tax advantages of being outside IR35 are significant. If you are undertaking project based work, are careful about your contract and working practices, you probably have a defensible outside IR35 position if in private sector. If you then get insurance, then in the unlikely event of being investigated you will very likely win.

Consider also that your competitors will be mostly operating outside IR35 and will have a lower cost base.

[Cirrus]

but you are still writing off the expenses which lowers your income.

If you are thinking travel and accomodation, then I think they are now treated as income. There aren't many other expenses I can imagine add up to much.

So no - don't give in to IR35 lightly.

[northernladyuk]

If you are thinking travel and accomodation, then I think they are now treated as income. There aren't many other expenses I can imagine add up to much.

So no - don't give in to IR35 lightly.

It's easy to think (for example): I was on 50k as a permie and now I'm on 100k, so the tax doesn't matter. But you are going to want to retire one day, and you may find yourself with a big gap between contracts. So try to make outside IR35 work if possible.