Aren't the majority of IT contractors inside IR35?

[NotAllThere]

Here's what I don't get - if a myco is working for a financial serices company (such as an IB) who can't claim back VAT, then if myco invoices £100K, hector gets 20% of that as corp tax (roughly - less expenses) plus 17.5% VAT - that's 37.5% of the invoice, without thinking about dividend tax. A permie earning £100K would be paying about 35% tax overall - so surely in this case hector doesn't care who you are - he gets the same either way?

The bank pays £117'500. That extra £17'500 isn't yours - you are just the unpaid tax collector. So, the bank pays you £100'000 - that's your income - and another £17'500 that you pass on to the tax man. If you are subject to IR35, the tax man will get the £17'500 in addition to the ERNIC you've paid on your income.

Or, to put it another way, the tax man makes more from the contractor than the permie.

[imightbewrong]

Yep - that's what I said right?

[NotAllThere]

No. What you said was:

A permie earning £100K would be paying about 35% tax overall - so surely in this case hector doesn't care who you are - he gets the same either way?

Hector does care whether your a permie or a contractor that he can nobble with IR35. He'll get more from the contractor.

[imightbewrong]

Presumably pretty marginally though - I my v.v.v.v.v. rough calcs above he gets 2.5% more from the contractor - I was trying to show that if you are say you are outside but then are 'caught' to be inside, Hector doesn't do any better out of you (excepting for past fines etc) so why bother?

[NotAllThere]

If the contractor is single (no income splitting), doesn't have many expenses, and empties his company's account every year, then the saving is just the (additional) ERNIC HMRC extract from the contractor.

Otherwise, it can make a significant difference. For example, if your spouse was on £60K, and you could live together very comfortably with just an additional £30K, you'd be stupid not to retain some company earnings in the company (or fund a pension).

There's another point you're not taking into consideration. IR35 isn't about increasing the tax take, it's about "fairness".

[ContractIn]

I have a question. Might sound obvious but as someone who has been caught up in the BN66 indignity I am now unclear.

If you become caught up in an IR35 investigation, can they only investigate your current contract? Are they able to look at previous contracts with seperate clients and deem you IR35?

[SueEllen]

If you become caught up in an IR35 investigation, can they only investigate your current contract? Are they able to look at previous contracts with seperate clients and deem you IR35?

Tip Do use the search facility on this site.

They will look at every contract as the law is per contract.

[escapeUK]

There's another point you're not taking into consideration. IR35 isn't about increasing the tax take, it's about "fairness".

Taking money from one group of workers to give to those who cant be bothered to work was never about being fair.

Nor was charging people "Insurance" that never actually pays out because you have too much savings.

How many people feel they cannot afford to have children? Yet see those others have 2, 3, 4 , all paid for by someone else.

Life is not fair.

[TheFaQQer]

I have a question. Might sound obvious but as someone who has been caught up in the BN66 indignity I am now unclear.

If you become caught up in an IR35 investigation, can they only investigate your current contract? Are they able to look at previous contracts with seperate clients and deem you IR35?

3 years on CUK and over 250 posts, but you haven't researched how IR35 works...

IR35 is assessed on a contract by contract basis - you could work on 50 contracts, 30 are inside, 20 outside. IIRC, board members of the PCG frequently have an inside and outside contract - inside for the PCG work they do, outside for their main source of income.

[mudskipper]

I have a question. Might sound obvious but as someone who has been caught up in the BN66 indignity I am now unclear.

If you become caught up in an IR35 investigation, can they only investigate your current contract? Are they able to look at previous contracts with seperate clients and deem you IR35?

I took the question to be whether they can decide previous contracts are "inside". My understanding is they can go back six years, so you need to keep details of all contracts.