Crackdown on personal service companies could raise £400m in tax

[jamesbrown]

That's reasonable; but we're not doing the same job are we?


What about the NI issues? Would the client/employer now have to pay NI on contractors? If so that's going to cost companies unless rates get depressed accordingly.

I wouldn't mind too much if my gross profit is taxed exactly the same as if it were a salary - no employer's NI - if I can still charge a premium as a contractor. Well... I mind but it's hard to justify

In the spirit of extrapolation, my reading is the same as this. In other words, they've realised that the difference between employment for tax purposes and ordinary employment is too narrow a path to thread in the context of SDC, so they've accepted that their upfront aim (stated in the IR35 discussion document) of increasing compliance for tax purposes without increasing the number of employees won't work. So, yes, IMHO they are talking about full employment, with all associated benefits, not employment for tax purposes alone. It will be a tough sell to big business (although, not all big business ), and this explains the nature and timing of the articles.

On your second point, different people may find different things acceptable, and I can understand your POV. Personally, I would not find this acceptable because I need to operate with the flexibility of a business, not a series of simultaneous or consecutive employment/PAYE arrangements. Incidentally, the option you describe of PAYE with employee's NI only is already available through Direct PAYE if your clients don't have a UK physical/tax presence.

[TestMangler]

Quote from the article:

The government acknowledges that a small number of professionals will still legitimately use personal service companies. Some IT workers might work for a company for a short period or they might work for multiple companies at the same time. In that case they would not be seen as an employee. Builders doing one job on a private house would be exempt.

But there are understood to be examples of professionals such as lawyers working for one company for a short period of two months. Ministers believe that in these circumstances they should be counted as employees and should pay income tax.

Could IT be exempt from the new rules?

There's optimism for you

[VectraMan]

If you're paying employer's NI and a permie isn't, you're not paying the same tax rate for the same job. So it would be 'preferable' if the 'employer' pays their part if we have to go this way, in terms of transparency.

Not this old chestnut. The employee is paying employer's NI, they just don't think they are because their salary is quoted after employer's NI. If the client has to pay employer's NI then all that will mean is they either quote your rate before as happens now with umbrellas and inside IR35 people, or they reduce your rate to account for it. If the cost to the employer is the same, the amount of tax to the exchequer and the amount you take home are exactly the same in both cases. So everybody pays the same amount of tax.

Obviously it would be better if the employer just paid it, but that amounts to a rate rise with no change in the service you're providing.

[Danglekt]

That's reasonable; but we're not doing the same job are we?

Yes.

Eh?

So you are stating every contractor is doing the same job as a permie?

[NotAllThere]

They saw the use of Limited to avoid tax by employers for people that should be employees...

That was the excuse they gave and the one you, somewhat naively, have believed. IR35 was never about employer abuse. It was about extracting more tax money from contractors.

[VectraMan]

Eh?

So you are stating every contractor is doing the same job as a permie?

In what way are you not? In my previous permie job I worked in exactly the same way as the contractors. Now I'm a contractor I continue to work in exactly the same way.

Which is not to say every contractor is working in the same way as every permie, but any employee in any kind of senior role is probably not doing anything differently.

[d000hg]

Not this old chestnut. The employee is paying employer's NI, they just don't think they are because their salary is quoted after employer's NI. If the client has to pay employer's NI then all that will mean is they either quote your rate before as happens now with umbrellas and inside IR35 people, or they reduce your rate to account for it. If the cost to the employer is the same, the amount of tax to the exchequer and the amount you take home are exactly the same in both cases. So everybody pays the same amount of tax.

Obviously it would be better if the employer just paid it, but that amounts to a rate rise with no change in the service you're providing.

If your salary is quoted after employer's NI then by definition you're not paying it. You are paying employee NI and PAYE because they come out of your paycheck.

Granted, it overall works out the same but it's not the same thing. For instance if employee NI rates change, your take-home will change. If they change employer NI rates, your salary and take-home will remain the same as the employer either coughs up the extra or saves some cash.

[jamesbrown]

Granted, it overall works out the same but it's not the same thing. For instance if employee NI rates change, your take-home will change. If they change employer NI rates, your salary and take-home will remain the same as the employer either coughs up the extra or saves some cash.

Nah, it doesn't really work like that. The difference is the timeframe over which the impacts are noticed. Anyone familiar with budgeting will tell you that the wage bill is treated as an overall bill; the component that goes to the employee is irrelevant on its own. If part of the wage bill goes up, there are a few options: one is to raise prices, another is to accept a reduced profit, and another is to reduce the wage bill elsewhere (e.g. reduced benefits, reduced path of future increments/increases, hiring freeze, promotion freeze etc.). Anyone that focuses on the wage bill from the employee angle alone is missing the bigger picture.

[LondonManc]

There are other obvious impacts:

Gideon kills off "standard" contracting - 6 month gigs through agencies; this leaves thousands of contractors without work and potentially claiming JSA/moving perm and paying less tax.
TCS/Crapita bring bobs in to replace and less tax paid over here anyway.
Better contractors going perm, forcing bobbins perms out of jobs and claiming JSA.

There isn't a single electable party out there at the moment. Corbyn would kill the banks off and the Tories would kill the contract jobs off.

[MrWebDev]

That Guardian article is so badly written, its untrue.
It was, also, interesting that the comments weren't activated on it .

It was clear the writer didn't have much understanding of the business model he was talking about. It also seemed to be very one sided, without a single comment from either anyone in Government, HMRC, IPSE or a contractor.

However, I do feel there is some substance to both the Guardian and DM article, as the content seems to be similar, which I feel points to some info being leaked out from a Government department such as the Treasury or possibly HMRC. Both articles use the 90% figure and they also both contain the £400m.