IR35 and the Bottom Line

[supersteamer]

Just looking for a reality check here....

Over the last few years I've been doing some gigs inside and outside of IR35. Doing the sums (real and hypothetical) on contractorcalculator and the likes, I'm not finding it makes a huge impact to my own net takehome.
I've always paid myself a living wage rather than a minimum wage and MyCo has a very generous pensions package, and allows me a decent amount of paid holiday each year :-)
When I travel I like to stay somewhere nice, not in some flea-pit, so travel expenses can be quite high (but not ridiculously so) and I make sure my 5% allowance is fully made use of (nice home office, laptop etc.)

It looks like IR35 is costing me maybe 2-3% of turnover.

If that's all it is, then what's the point of going to all the grief of winding up clients with (what they see as) petty issues about working practices and endangering renewals for a relatively small amount of cash?

Presumably I'm just a freak, a statistical outlier? Other people are seeing much bigger losses on their income for all the heat and fury this generates. I guess if you're on a good rate, with little time off, few expenses and looking to squeeze every penny it does make a difference. But how much percentage-wise does IR35 hit the average contractor? How far from the norm am I?

[malvolio]

Just looking for a reality check here....

Over the last few years I've been doing some gigs inside and outside of IR35. Doing the sums (real and hypothetical) on contractorcalculator and the likes, I'm not finding it makes a huge impact to my own net takehome.
I've always paid myself a living wage rather than a minimum wage and MyCo has a very generous pensions package, and allows me a decent amount of paid holiday each year :-)
When I travel I like to stay somewhere nice, not in some flea-pit, so travel expenses can be quite high (but not ridiculously so) and I make sure my 5% allowance is fully made use of (nice home office, laptop etc.)

It looks like IR35 is costing me maybe 2-3% of turnover.

If that's all it is, then what's the point of going to all the grief of winding up clients with (what they see as) petty issues about working practices and endangering renewals for a relatively small amount of cash?

Presumably I'm just a freak, a statistical outlier? Other people are seeing much bigger losses on their income for all the heat and fury this generates. I guess if you're on a good rate, with little time off, few expenses and looking to squeeze every penny it does make a difference. But how much percentage-wise does IR35 hit the average contractor? How far from the norm am I?

I take a living income as well, with sensible expenses and decent pension planning and get time off when I fancy it. So what's different other than me not paying any more taxes than I have to?

IR35 is making you pay personal levels of tax and NICs on your gross company income. Clearly if you are paying yourself a living salary, rather than the minimum level £7.5k,then there will be little difference between inside and outside IR35.

If however you plan to keep YourCo money in YourCo and/or optimise your taxation levels, then there is a difference of around 20% in net income. Which is significant.

So yes, you are an outlier, but it's your decision and there's nothing wrong in it. If everyone did it your way we probably wouldn't have IR35.

And what's more, I'll give you good odds your inside IR35 contracts probably aren't.

[Wanderer]

It looks like IR35 is costing me maybe 2-3% of turnover. But how much percentage-wise does IR35 hit the average contractor?

An IR35 caught contractor's net pay would increase by about 20% if they can avoid IR35. That rises to about 30% if they are potentially a higher rate tax payer and they income split with a spouse who doesn't work. I don't know where you get the 2-3% figure from.

How far from the norm am I?

You are terribly deluded about your tax position but I'm sure HMRC are quite happy to keep accepting your charitable donations and it sounds like you are perfectly happy with where you are so don't worry about it.

[northernladuk]

You are terribly deluded about your tax position but I'm sure HMRC are quite happy to keep accepting your charitable donations and it sounds like you are perfectly happy with where you are so don't worry about it.

And he can sleep safe and sound

[eek]

And he can sleep safe and sound

Can he? A living way doesn't mean that he's paying all his income as wages and that is what Hmrc really want.

[supersteamer]

An IR35 caught contractor's net pay would increase by about 20% if they can avoid IR35. That rises to about 30% if they are potentially a higher rate tax payer and they income split with a spouse who doesn't work. I don't know where you get the 2-3% figure from.

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e.g. Not necessarily my figures but indicative of the argument:
£400 day x 40 weeks (good long holidays) = £80k; £25k / year salary (living wage); £15k / year travel (decent accommodation); £20k / pension (generous pension)

Tax outside IR35 = £11,090
Tax inside IR35 = £13,046
Difference = £1,956 => 2.4% of turnover

Obviously this ignores the tax benefit of keeping money in the company but you got to take it out sometime...!
I'm not saying that I think IR35 is fair, nor do I happily part with £1,956, but it's not enough to make me jump through client-irritating hoops, or to turn down the gigs, where they DO plainly just want a temporary employee.

[Wanderer]

Can he? A living way doesn't mean that he's paying all his income as wages and that is what Hmrc really want.

Yep. A contractor could still get investigated and hung out to dry. I'm sure there will be some credit given for the charitable donations made to HMRC though.