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ir35 in private sector

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    #11
    Originally posted by simes View Post
    I daresay I am missing a point, and perhaps this has already been calculated at length elsewhere, but, based on OneManBand's point above and if this were to be reflected by the majority, if the HMRC's aim is 'to collect more tax', would a Permie, on a permie's salary, actually return less tax than a contractor on a day rate for a year?

    It is all well and good saying that a PM on £500 a day should pay an employee's rate for the £120k for the year. But the sad fact is that if the contractor PM on £120k pa moved to be a permie PM on £70k pa, there may actually be less tax earned.

    Am I talking rubbish? Please feel free to shoot me down...
    You aren't missing a point.

    Employment rights, any tax-free employment benefits, and security are worth something. The employee is given those things without paying tax on them. The contractor is instead given more cash, to compensate him for not having those things. He can use some of the cash to give himself some of the tax-free benefits (things like a relevant life plan) and not be taxed on that. But the cash compensation that he gets in lieu of employment rights/security is taxed. If he is tax-efficient, he'll be taxed at a more favourable rate than the employee, but the tax is on a much higher amount, because he gets cash, not rights.

    The result is higher revenue for HMRC.

    But it isn't enough for them. They don't want the contractor to be able to be tax efficient, because it isn't "fair." In that case, it isn't "fair" that employees get employment rights without any tax liability on them. Those rights are valuable -- that's why clients are willing to pay a contractor more than an employee. If a contractor who is doing the same work as the employee in the same way has to pay tax at the same rate as the employee on ALL his compensation, why doesn't the employee have to pay tax at the same rate on ALL his compensation? When you set an economic value on employment rights and tax them, then you can talk about using the same tax structure for employees and contractors as being "fair".

    They don't care about "fair", though, they just care about more money coming in, especially from people who are doing well.

    Comment


      #12
      Do you want to live in Sweden or the USA?

      Over years the basic model of paying people money to undertake work has changed. It used to be straightforward but then came all manner of things which are considered good for society - maternity pay, employment rights, industrial tribunals, paternity rights, pension rights, sick pay etc - but move the role of employer from the person who pays someone to undertake work and more towards someone who provides a whole-life welfare safety net. You fall ill? No problem, we’ve got it covered. You need paid time off to be with your children? No problem, it’s covered. When you no longer work for us, we’ll still take care of you via a thing called a pension. You choose to have kids – no problem we’ll give you time off and keep paying you. You want to take a holiday? Have 6 weeks on us – we’ll continue to pay you even when you're not doing any work for us.
      Has the safety net become a hammock?

      Sooner or later there was going to be a rebound. i) Companies who simply wanted to hire people to undertake work and on the other hand ii) people who didn’t want a pension or sickness cover, they simply wanted cash, would come together. It’s also no surprise that at the same time we see the well-paid contractor who has concerns about IR35 and the buy-to-let market (many of the people on this forum) and the rise of the zero-hour contract. It’s a very predictable backlash.

      But there is a big problem with this model. It is Darwinian, if you’re a socialist. The strongest and fittest have opted out and make the most money, while those less able or less pregnant or less helathy or less mobile are in permanent roles and reliant on their employers for broader support. Meanwhile the employer sees more and more of the best people going it alone while retaining more and more of the less mobile, less healthy etc. people on the payroll.

      So how can society as a whole address this? The government is trying to say that everyone is an employee: whether you like it or not you will have paternity rights and paid bank holidays and be subject to a 48-hour working week and a zillion other things. And to do this they need to maximise the tax take. (Think Sweden).

      But maybe it is not society’s problem to solve. Maybe it is simply the outcome of a meritocracy where people are encouraged to take control of their own lives while providing a safety net for those who are unable to via low taxes. (Think the USA).

      Where do you want to live?

      Comment


        #13
        Originally posted by HugeWhale View Post
        Do you want to live in Sweden or the USA?
        The government is trying to say that everyone is an employee: whether you like it or not you will have paternity rights and paid bank holidays and be subject to a 48-hour working week and a zillion other things. And to do this they need to maximise the tax take.
        Are the IR35 reforms really saying that?

        Perhaps I have missed something but once reformed, will I as a contractor get paid bank holidays, sick pay and the rest? Not sure it is.

        Comment


          #14
          Originally posted by simes View Post
          I daresay I am missing a point, and perhaps this has already been calculated at length elsewhere, but, based on OneManBand's point above and if this were to be reflected by the majority, if the HMRC's aim is 'to collect more tax', would a Permie, on a permie's salary, actually return less tax than a contractor on a day rate for a year?
          No, but HMRC and the government look at people doing what they think are the same jobs and think that you can swap one for the other and the same for the tax.

          One might be paying a lower percentage than the other but they presume that a contractor invoicing £100k a year would just swap to a permie job paying £100k a year and therefore they would pay loads more money.

          Two key facts:
          1) they won't swap invoice value for salary at a 1:1 rate. Nowhere near that.
          2) they aren't doing the same job for the same money. They are doing the same job for different money with different rights. That's what the money compensates for, but that's never seen in any comparison because it would highlight the unfairness of IR35. Being inside IR35 means you pay more tax and get less rights, under the guise of "fairness" somehow.

          Comment


            #15
            Originally posted by TonyF View Post
            No, but HMRC and the government look at people doing what they think are the same jobs and think that you can swap one for the other and the same for the tax.

            One might be paying a lower percentage than the other but they presume that a contractor invoicing £100k a year would just swap to a permie job paying £100k a year and therefore they would pay loads more money.

            Two key facts:
            1) they won't swap invoice value for salary at a 1:1 rate. Nowhere near that.
            2) they aren't doing the same job for the same money. They are doing the same job for different money with different rights. That's what the money compensates for, but that's never seen in any comparison because it would highlight the unfairness of IR35. Being inside IR35 means you pay more tax and get less rights, under the guise of "fairness" somehow.

            I think the really naive issue the government overlooks is that we are not doing the same job. As a contractor I have specialised skills which take lots of home study to achieve, I'm much more productive because I'll get terminated if I'm not and I have a lot more experience because I have done much the same thing for other clients recently.

            Comment


              #16
              Originally posted by TwoWolves View Post
              I think the really naive issue the government overlooks is that we are not doing the same job. As a contractor I have specialised skills which take lots of home study to achieve, I'm much more productive because I'll get terminated if I'm not and I have a lot more experience because I have done much the same thing for other clients recently.
              In theory, they would say that someone like you isn't doing the same job and you aren't the target of IR35. In practice, though, they want your money, so if it is handled in a way that drags you into IR35, they win!

              Comment


                #17
                Originally posted by TonyF View Post
                They are doing the same job for different money with different rights.
                Although I'm sure it happens, I imagine that the scenario where the permie and contractor sit alongside each other doing exactly the same job is not that frequent in our line of work (assuming most of us are IT contractors). Possibly more common in something like nursing, but I may be misunderstanding that domain.

                I suspect it is more a case that HMRC see me writing code for a client, and think "a permie could be doing that" and extrapolate from there, sitting their imaginary permie next to me, ignoring that myCo is engaged because my client doesn't want or need a permanent developer.

                Comment


                  #18
                  Originally posted by mudskipper View Post
                  Although I'm sure it happens, I imagine that the scenario where the permie and contractor sit alongside each other doing exactly the same job is not that frequent in our line of work (assuming most of us are IT contractors). Possibly more common in something like nursing, but I may be misunderstanding that domain.

                  I suspect it is more a case that HMRC see me writing code for a client, and think "a permie could be doing that" and extrapolate from there, sitting their imaginary permie next to me, ignoring that myCo is engaged because my client doesn't want or need a permanent developer.
                  In the case of teaching, nursing and even Doctors the interim staff are performing the same tasks as the regularly employed staff except the management bits everyone hates - one reason why NHS improvement attacked contracting so merrily is because a locum Doctor has a far less stressed role for more money than a permanent one.

                  Now I'm being Devil's Advocate here But there is no reason why you as a temporary employee could not be on a fixed term contract as almost a member of staff. After all it's not as if your skillset is unique as your contract clearly offers you the right to provide a substitute which surely means your skillset is available on the marketplace.

                  And equally, it's likely that your client does have a permanent person doing almost the same job you are working on, I can't think of any client I've contracted with that doesn't have someone permanent doing something (very) vaguely like the one I'm doing (especially if you've got a PPE or classics degree and don't understand computers). Even if you are highly specialist the chances are you will be working with a consultancy that have permanent employees also doing xyz.

                  Remember that for HMRC, IR35 is now a battle mainly over Employers NI contributions - although they are doing everything they can to hide that fact. And everyone has the permanent job they've always wanted with a lovely 360 appraisal to make sure their confirm.
                  merely at clientco for the entertainment

                  Comment


                    #19
                    Well, I've got myself a QDOS IR35 insurance last night. Never felt it necessary before, but the time has come now to fork out the money, just for my peace of mind if nothing else.

                    Comment


                      #20
                      Originally posted by OneManBand View Post
                      Well, I've got myself a QDOS IR35 insurance last night. Never felt it necessary before, but the time has come now to fork out the money, just for my peace of mind if nothing else.
                      Have you looked at IPSE+ as well? Other benefits like jury duty and business interruption if gigs go south. You can make the cost up with the Advantages scheme if you are thrifty type.
                      'CUK forum personality of 2011 - Winner - Yes really!!!!

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