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

[jamesbrown]

You can see what I'm pointing out though......if it works this way then it makes contracting (if caught by IR35) totally pointless. Why would anyone do it, zero rights, zero benefits, risk of breaks between contracts for only marginally more money....you'd have to be mad.

There will be some variability between industries, but I dare say that, in most industries, contractor day rates will be a significant multiple of equivalent permie rates, and for good reason. In other words, even on a purely financial basis, many would choose to contract inside IR35 than be employed (an unfortunate reality in some ways).

[jpdw]

Most of this now seems to be about the mechanism to penalise those people that become 'caught'.

Whether the suggested WHT is used as a payment-on-account for MyCo's CT or my own IT/EES or MyCo's ERS still doesn't address how they deem a contract/MyCo or individual to need to pay 'more' vs still be paid gross.

Even differentiating whether a company provides mainly services vs goods would seem off in a country that talks of having a 'knowledge based economy' and where manufacturing (ie. the making of said goods) is no longer the scale it once was.

Ludicrously complicated mechanisms that still dance around whether someone works for the legally non existent entity they call a "PSC". And yet more complicated mechanisms to allow an established list of large players to be entirely unaffected.

[jamesbrown]

doesn't address how they deem a contract/MyCo or individual to need to pay 'more' vs still be paid gross

Right, but there are several different aspects to this: the deeming criteria, the mechanism to test status using those criteria, who applies the test, the mechanism for payment, the mechanism for reporting/enforcement, the contractual relationship and employment rights etc. The bit you're talking about above will be the updated ESI, which will probably have a decision tree, with some upfront exclusions (e.g. one month, possibly something about concurrent clients, although I'm somewhat skeptical about that), followed by a drill-down that gets to SDC etc.

[m0n1k3r]

I agree that tax is not an issue for the EU, however HMRC making clients pay employers NIC, but then refusing to acknowledge the person as an employee possibly is.

Under the EU rules, the contractor would be a worker, not an employee. Although there is a right to certain employment benefits after 12 months, it is not a right to the full permanent employment benefits.

[MPwannadecentincome]

More to the point, WTF is a PSC?

And again, even the articles on websites where the journos should know better, this mythical "psc" is still mentioned all over the place. Good job none of us have one of them then!!! Although not mentioned in any of today's "leaks" understanding what constitutes being something other than a psc could be key.

On the other side of things, there's no denying that there are a lot of contractors who really behave like permies - they have no clue about running a business - VAT, tax, acounts, contracts etc - and no desire to learn either. And strive to move upwards from one role to another around ClientCo, clocking up more years' continuous 'service' than most permies. So its hardly surprise we're all a big target.

Isn't a PSC a company owned and operated/directed by a sole person who submits a tax return ticks "yes" in the box asking if services are provided through a personal service company?

And yes let's stop these psuedo contractors looking for a career in the same Client Co from spoiling everything for the rest of us.

And I think it's safe to say that clients will deduct BOTH the employer and employee NIC from the day rate, which will make a contract deemed inside IR35 totally impossible......you'd earn more as a permie. Businesses are not going to accept that they have to pay the employer NIC on top of the contractors day rate (and agency margin).

With regards to the PAYE rate, once the day rate has had employees and employers NIC deducted (don't kid yourself that the employer is going to foot the NIC bill) along with income tax......i'd be very surprised if there was much left between permie and a contractor with apparent zero employment benefits.

Based on the below, which would you choose......permie with 6 weeks holiday, sick, pension etc, or contract with zero benefits.

Based on 15/16 Tax Rules

Contractor @ £500pd x 47 weeks - £117,500
Employees NIC - £5,600
Employers NIC - £15,095
Tax - £39,900
Take Home - £56,900

Employee On £85,000
Employees NIC - £4,971
Employers NIC - £0
Tax - £23,403
Take Home - £56,600

I really hope I've missed something here, but I don't think I have.

Only a fool would even begin to think that the end client will foot any employers NIC, it won't happen.

There will be some variability between industries, but I dare say that, in most industries, contractor day rates will be a significant multiple of equivalent permie rates, and for good reason. In other words, even on a purely financial basis, many would choose to contract inside IR35 than be employed (an unfortunate reality in some ways).

I don't know why you would earn more as a permie. Firstly the day rate multiple exists as the risk nature of contracting. Market forces (supply and demand) determine those day rates today (well some agency profiteering too). How many contractors are direct at £550 pd? Also I can't see the Client deducting any NI as in many cases they don't have the tax records if the Agency has them, what if the contractor is already paying NI elsewhere on another role? How do they know for sure how much the Agency is retaining as "holiday pay" and the rest at what rate?

If there is an agency the client is paying a lot more on top of that £550 possibly £600 to £700+. On the other hand comparing to a permie salary of £85,000 well that figure would be NET OF the employer NIC. The employer cost of an employee is the "published" salary plus employer pension contribution plus Employer NIC plus a "deemed" sum towards the cost of providing office space, subsidised canteen and facilities etc etc. In fact some company's will cost their internal employees according to pay grade for cross charging purposes. As a PM I have run projects with a mix of internals and contractors, by the time the internal rate is put in the sheet alongside what the contractor is costing the gap is reduced though the contractor is higher especially much higher compared to a contractor sourced through an agency.

So my point is comparisons need to be apples with apples. And that is hard as genuine contractors are not the same breed of apple as most permies. Any good permies in most organisations are either promote into management or special high pay grade technical roles that allow that organisation to keep its gurus.

And where this leads to in the future? I think large clients would like to see more parity between their own costs at the high pay grades and what they pay for a contractor. That either means FTC or if a day rate then if their internal day rate comes out as £350 per day that is what they would expect to pay the contractor plus a agreed cap on the agency margin and it may be many of those contractors are deemed to be inside IR35. That would be the client's dream to have rates come down. Market forces will come in to play, if supply drops or if the contractor can negotiate a higher rate due to the specialism of their skills then the rates will be higher.

Interesting to see how this will play out.

For me I can put up with being inside IR35 if I can retain a good rate. I am too old on the points systems for most countries to emigrate, e.g. US or Canada or Australia, if you are young go whilst you can!

[jamesbrown]

I don't know why you would earn more as a permie.

Eh? Perhaps re-read what I wrote.

So my point is comparisons need to be apples with apples.

There shouldn't be an apples-to-apples in most cases, otherwise you're effectively a permie on a different pay structure.

[cmscotland]

Having had a read through the broadsheets this morning I'm surprised there isn't more mention of these possible changes, especially as the government love to leak this sort of stuff early, only a veiled comment about Travel and Subsistence being banned in the Times.

[SussexSeagull]

If this (or something like this) is implemented, I would expect contracts to be flagged as in or out of IR35 at a very early stage by the client or agent.

One would hope companies would realise that keeping someone out of SDC would actually give them the spending power to get the right people in and educate their middle managers what the difference is in working practices.

We shall see.

[MPwannadecentincome]

Eh? Perhaps re-read what I wrote.



There shouldn't be an apples-to-apples in most cases, otherwise you're effectively a permie on a different pay structure.

Sorry James the points about earning more as permie or not was based on what others had said in the first set of quotes - I wasn't questioning what you said on that I was agreeing with you! I quoted you only to help illustrate the differentials that are in place for day rates vs permie.

If a Client has a guru and wants a second one, they would ideally like to pay the second guru no more than the existing one, yes the the day rate will be higher as the second guru will sell the reasons why they have to be paid more.

[PurpleGorilla]

So then Georgie boy.........it seems you and your family aren't quite so interested in the "spirit of the law" as you insist the rest of the country should be. As long as the law says it's ok, then that's fine for you........just not anybody else.

As I said before, f'ing hypocrite.

I'd love to see this article plastered on billboards around the country.

Share it with everyone you know!