IR 35 inside contract – still paying Employer’s NIC?

[2uk]

Where is the law logic here ? If you are deemed “employee” , and the contract is taxed PAYE why would you pay employer’s NIC ? So, one to one, an Inside contract is more expensive compared to the same pay had you been employed by them. Not even to mention that you don’t get Sick/Holiday pay etc.

How is this supporting the contractor ?

[malvolio]

Where have you been for the last 8 years? IR35 is not taxing you as an employee, it is merely trying to make you pay the same amount of tax as an employee even though you are neither an employee nor self-employed. So you pay both employers and employee NICs. Nobody said it had to make sense, or even be very fair - well, apart from us bolshie buggers who did something about it, which is where the PCG came from

[2uk]

Where have you been for the last 8 years? IR35 is not taxing you as an employee, it is merely trying to make you pay the same amount of tax as an employee even though you are neither an employee nor self-employed. So you pay both employers and employee NICs. Nobody said it had to make sense, or even be very fair - well, apart from us bolshie buggers who did something about it, which is where the PCG came from

So , in effeect you pay Employer NIC and Employee NIC whereas an employee pays only Employee NIC. Thus the legislation is not making you pay the same as an employee but more than that.

[ASB]

So , in effeect you pay Employer NIC and Employee NIC whereas an employee pays only Employee NIC. Thus the legislation is not making you pay the same as an employee but more than that.

An alternative (but unpopular ) view is that is all rolled up the rate. The engager is outsouricing the entire cost of employment not just the "salary".

[Bigbird]

So , in effeect you pay Employer NIC and Employee NIC whereas an employee pays only Employee NIC. Thus the legislation is not making you pay the same as an employee but more than that.

Almost. It's not the legislation making yuou pay more, it's your own choice of payment vehicle. Have a history lesson, on me.

Historically contractor pay has always been higher than permie pay because the client didn't have the albatross of employers NIC around his neck so could afford to pay you slightly more on an hourly/daily/project basis. You were then of course able to set your affairs up in the most tax-efficient way possible to reduce your own liability and keep more of your money - this generally worked to the financial advantage of both contractor and client. If there was an agency involved they stayed neutral, charging the client an agreed %age of the contractor rate as their margin.

It was the advent of first the Umbrella co then the MSC that made everything so complicated. Agencies discovered that they could still charge the client a %age of the margin to cover employers NIC and the client wouldn't quibble. They could then pay the contractor through his MSC or Umbrella relieving themselves of any liability for employers NIC. 9 times out of 10 the contractor would be better off in his pocket doing the min-wage-plus-dividend thing or the PAYE-plus-expenses thing with an Umbrella even if the agency paid him the permie rate for the job or did a split of the bit of margin that the client thought was going to cover the employers NIC. So the agency was happy (they kept the extra margin that was meant for NI, or used the NI saving to undercut their rivals on rates and get more business) the contractor was happy (he had more money to spend), the MSC and Umbrella providers were happy (they had an expanding and profitable market to tap into) and the client was none the wiser. Only loser was the govt, as less employers NI was being deducted and paid over. On a small scale this was not a problem, but then the agencies and MSC providers started to get greedy and your non-genuine contractors started to appear in the MSC schemes.

Cue HMRC panic and a knee-jerk reaction that introduced the Intermediaries Legislation (IR35). This had the desired effect in a few cases of scaring people away from the MSC or Ltd Co working practice (mostly into Umbrella rather than back to permie, which was of course not what they intended at all) but it was so ill-thought-out and badly worded that most contractors and MSC providers just ignored it. After all, what was the worst that could happen? The contractor's company gets hit with a bill for the extra tax and NI. Hmmmm, but in that case his company just folds with no assets and hey presto! Nobody legally liable for the tax bill! Another company providing his services starts tomorrow, absolutely nothing they can legally do about it.........

So the govt sat down and had a rethink. Instead f throwing money at trying to enforce IR35 they started to research the market thoroughly. They turned it inside out and stripped it bare, and learned exactly how it worked. Then they set about building the legislation to destroy it.

Hence where we are now.

Umbrella contractors are not better off than permies unless they are on a significantly higher rate because they have to fund the Umbrella Co fee and the employers NI out of their gross earnings, while at the same time the goalposts have been moved on the amount of expenses they can claim to reduce their tax liability.

MSCs are no longer a viable option for anyone in the form that they used to be because of the requirement to pay full PAYE on earnings (including employers NI) and the legislation that allows unpaid debt to be transferred to third parties, ie you.

Small Ltd Cos are OK and can operate as usual in a tax-efficient manner for the owner/manager providing they can demonstrate that they have no connection to anyone that HMRC could possibly designate as an MSC provider and providing they are still compliant with the IR35 provisions.

Once again a large proportion of people have gone back to permie working because contracting is no longer a viable option for them financially. Some have ensured their rates are significantly higher than permie equivalent and gone to Umbrella. Some have taken great pains to set up their company and contractual structure to ensure that they are as outside any legislation as they can be and have very little to fear in terms of a tax investigation. And some are just blundering along blindly, not really knowing the bigger picture and hoping for the best when other people (who usually have their own agenda) tell them it will be OK.

HTH.

[exbrm]

Well said Bigbird.
Let's see if any more **** hits the fan this week/next week when HMCR are supposed to be clarifying Accountant/MSC Accountant rules - the ones blundering along blindly may be in for a shock!

[2uk]

Oh crap. So did the government ever announce that they want to move contractors into permanent employees. With this taxation it is obvious that this is what they want. Did someone come up with some economic vision or something ?

Or they want us ti become small comapnies ?

[Gonzo]

Oh crap. So did the government ever announce that they to move contractors into permanent employees. With this taxation it is obvious that this is what they want. Did someone come up with some economic vision or something ?

No, they just found out that people like us were not paying National Insurance like employees do, decided that that was not "fair" and they should do something about it.

Where have you been the last decade?

[2uk]

Where have you been the last decade?

Permie. I regret every year of it.

[2uk]

No, they just found out that people like us were not paying National Insurance like employees do, decided that that was not "fair" and they should do something about it.

Contractors were paying employer/e NICs , only less because of the drawing scheme. And with IR35 it is almost like they want to take it back from contractors.