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

[BlasterBates]

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.

I agree with this, essentially the employee cost (wage plus employers NI) is driven by the market, if you were to remove the employer's NI and shove it on the employee, there would be more scope to raise salaries and with the "hoo ha" of employees being lumbered with extra costs the salaries would be put up to compensate and the employee would be earning what he earnt before. It would be a zero sum outcome.

[MrMarkyMark]

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.

Generic stuff, I would probably agree with you in most cases.

Specialist stuff I wouldn't.
I haven't come across one permy, apart from when I worked with a Principal Consultant, for the product I specialise in, who has as much knowledge as me.
Even then, that Principal wouldn't have the broadness of knowledge across the product that I have.

As well as post drivel, on here, I also contribute to a, very active, technical forum on the internet with 77859 registered users, at last count.
It would be interesting for some business leads to see, how our offshore counterparts run their development activities, purely, by posting questions on an internet forum .

This is why all this personally rankles, I have no D&C in my work, I provide a specialist service, usually advising them what they need to do.
That's a lot different to a generic Data Analyst / Excel / Access type of jockey role.
Still, there's a lot of demand in the Netherlands, obviously, taxes are high, but, at least you can see evidence of them being spent "correctly".

[IR35 Avoider]

So if I've understood this correctly, the suggestion is that if a given individual spends more than one month with a client, all subsequent pay in respect of time worked for that client will have to be via PAYE.

Just want to speculate on how this would work.

I guess it will be a revision to IR35, with the definition of "caught" changing to include any money generated from each individual - client relationship, other than the first month's worth.

This would have no effect on clients or agencies. PSCs can continue to exist, but nearly all income will now be caught. PSCs will continue to be a better option than umbrellas as:-
1. It actually costs less to run a PSC that to funnel your income through an umbrella (my comparison last done in 2010 was Parasol versus Crunch Accounting, doubt anything has changed.)
2. A PSC allows you to take salary evenly across the tax year, the umbrella model of paying out salary as it comes in can result in higher National Insurance bills for the same overall salary.
3. If pensions don't get abolished, it's easier to fund the scheme of your choice via a PSC.
4. You can make a profit from the flat rate VAT scheme that more than pays your PSC running costs.

[vetran]

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.

It was one of the publicly quoted reasons for IR35, if it was a lie then it should be exposed as such.

There is a lot of abuse by employers at the bottom end of the pay scale. I really don't care if a BBC fat cat is in false Limited company status so long as he pays the same amount of tax roughly.

I do care if some poor van driver is doing an 80 hour week for below minimum wage at the behest of a large internet store or pizza parlour.

[VectraMan]

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.

By that logic if a job ad quoted the take home pay then you wouldn't be paying any tax. Huzzah!

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.

You have a point, but that's likely only the case with existing permies. For contractors they're more likely to reduce your rate come renwal time if not before to compensate, and the amount other clients will pay is also reduced. So you end up paying the increase at the end of the day.

[VectraMan]

Generic stuff, I would probably agree with you in most cases.

Specialist stuff I wouldn't.
I haven't come across one permy, apart from when I worked with a Principal Consultant, for the product I specialise in, who has as much knowledge as me.
Even then, that Principal wouldn't have the broadness of knowledge across the product that I have.

As well as post drivel, on here, I also contribute to a, very active, technical forum on the internet with 77859 registered users, at last count.
It would be interesting for some business leads to see, how our offshore counterparts run their development activities, purely, by posting questions on an internet forum .

You're an expert because you're an expert, not because you're a contractor. You could take a permie role with the same client and continue to do exactly the same thing. Or alternatively they could find another you, someone with exactly the same skill and hire them as a permie and you'd now work in exactly the same way and doing exactly the same job as a permie.

[MrMarkyMark]

You're an expert because you're an expert, not because you're a contractor. You could take a permie role with the same client and continue to do exactly the same thing. Or alternatively they could find another you, someone with exactly the same skill and hire them as a permie and you'd now work in exactly the same way and doing exactly the same job as a permie.

You have missed the point, I thought I had been quite clear

Client Cos never have the sort of permanent role in what I do, that's the point.
They tend to segregate the roles, into little areas, rather than someone who can go across the whole piece.

You would need multiple people, even from the software consultancy mentioned, to provide what I do.
What you are suggesting would mean I have to de-skill myself, basically, so I could fit into a perm engagement model.

I would suggest that you have more to be concerned about, as you can see little difference in your working practices, duties, or whatever you want to call them, than a BOS perm.

[jamesbrown]

You're an expert because you're an expert, not because you're a contractor. You could take a permie role with the same client and continue to do exactly the same thing. Or alternatively they could find another you, someone with exactly the same skill and hire them as a permie and you'd now work in exactly the same way and doing exactly the same job as a permie.

You're missing the point. For many of us, the type or degree of expertise we provide is not integral to the business model of our clients so while, in principle, the contractual details don't matter, their business models would be seriously undermined if they had to employ all of their specialists (with all the associated compliance and HR necessary to achieve that). The principle is really no different than subcontracting more generally. Most businesses rely on subcontracting, to a greater or lesser degree, in order to focus on what makes them unique and profitable.

[LondonManc]

You're an expert because you're an expert, not because you're a contractor. You could take a permie role with the same client and continue to do exactly the same thing. Or alternatively they could find another you, someone with exactly the same skill and hire them as a permie and you'd now work in exactly the same way and doing exactly the same job as a permie.

Looks like you've missed the main purpose of contracting from a "forget the NICs dodging by employers side". Specialists tend to be more project-based engagements.

If I was building a BI platform from scratch, I'd want a data warehouse architect and one or more reporting specialists together with a skilled PM with DW implementation experience. I'd want a separate team of perms for the support and enhancement of the BAU situation once the DW and the reporting layer have been delivered by the experts. This is for several reasons:

The specialists would cost too much to be perms, probably wouldn't want to be perms and I wouldn't need the PM once the project delivery is wrapped up. Making the specialist perms redundant wouldn't be cheap either. I'd need an Information Delivery Manager at that point (perm role) who would manage the BAU/change; I'd need more junior staff to ensure that things keep ticking over and a more seasoned perm developer to have one eye on R&D. I'd also keep the contact details of those who have been on the project and potentially call on them again.

[tomtomagain]

You're an expert because you're an expert, not because you're a contractor. You could take a permie role with the same client and continue to do exactly the same thing. Or alternatively they could find another you, someone with exactly the same skill and hire them as a permie and you'd now work in exactly the same way and doing exactly the same job as a permie.

But a major point you are missing is that most organisations do not want to have all the skills "in-house" because they do not need those skills all the time.

For example. Say you are running a small IT department in a medium sized company. You might have 5 technical people on staff.

One year you identify an opportunity to build some bespoke software for the company. You secure the budget, hire in a team of contractors ( PM, developers, UI expert, infrastructure expert etc etc ) and spend 9 months doing what you need to do.

After the 9 months ..... you no longer need those people. Not because you don't like, want or value them ... but because you simply don't have the budget, resources AND the challenging technical work that they like doing to sustain them indefinitely.

So you need to let them go.

So in the new world what happens? You have to hire them all as permies? And then make them redundant? That's crazy.

An unintended consequence is that it will make permanent employment less secure not more secure. Because it would be discriminatory to simply put the "New Hires" through the redundancy process without actually considering all the "Old Permies".