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

[Jog On]

I believe we can'ty be sole trader because the agencies are then liable for employers NIC, also the liability thing. Someone on here (can't remember who) worked on Deepwater horizon - and is glad they have LTD liability. Try going sole trader for any gig that isn't direct and see what happens...

So much for 'tax incentivised incorporation'

[Danglekt]

Exactly - I have been running Programme Offices for some time, often I'm the first in on a large project alongside a permie Programme Manager, I set everything up, hire the staff, run things, shut it down and turn off the lights before I leave. There is no intention to keep me and sometimes these gigs run into 2/3 years.

It's the nature of the beast, not every type of contracting is IT development. I'd say there were as many project manager types as there are anything else nowadays. Hired for a project, then got rid of. Why would you want to make such people perm and put them on your books? In the financial sector Solvency II was a great example where people with project experience were brought in to put in place regulatory requirements, once complete, never to be done again.

I'm in a very similar boat with the sorts of contracts I do, and agree it's unfair to make this about IT vs. but that is down to the articles rather than anyone on here.

I don't mind everyone here having an IT focus, it is too good a resource to object about the slightly skewed views.

[The Spartan]

IIRC if you're a sole trader and decide not to pay any NIC then HMRC can go after whomever was your employer i.e. the agency. By having a Ltd there is an intermediary between you and the engager.

Oh well, that rules out that idea then

[DaveB]

Oh well, that rules out that idea then

Not neceserily.

If the changes proposed come in and "PSC"'s are effectivly kllled off we might find the market attitude to sole traders changes. Especially if some way can be found to indemnify agents or clients from the percived risk of tax liabilities.

[d000hg]

Oh well, that rules out that idea then

Though there might be (or could be) insurance products to cover this, perhaps?

[jamesbrown]

Insurance products are no substitute for limited liability (there's no insurance product that offers unlimited liability) and there are regulatory issues beyond working through an agency (depending on the industry, direct contracts would be very difficult too). The agency route was effectively killed back in the late 1970s and persists in ITEPA 2003 (s44-s47), i.e. there is no mechanism whereby agencies can pay sole traders gross. This isn't about agencies deciding they can't be bothered to deal with sole traders.

There's some useful history here:

Do contractors need limited companies? :: Contractor UK

[DaveB]

Might be starting to get some wider coverage

IT contractors raise alarm over HMRC mulling 'one-month' nudge onto payrolls

[seeourbee]

It does go up. Take this incredibly simply example, Contractor earns £100k.
If we look at the portion above £40k only, and just the Income and Corporation Tax viewpoints.

The contractor personally will pay £60k @ 40% income tax = £24k gain to HMT
The contractors PSC will pay less Corporation Tax @ 20% = £12k loss to HMT
Both Agent Co.’s Turnover AND costs will increase by £60k, net nil = no change to HMT
Net gain to HMT = £12k

But that’s just the two taxes perspective, there’s a storm of other variables that get pulled into the mix.

[pjt]

It does go up. Take this incredibly simply example, Contractor earns £100k.
If we look at the portion above £40k only, and just the Income and Corporation Tax viewpoints.

The contractor personally will pay £60k @ 40% income tax = £24k gain to HMT
The contractors PSC will pay less Corporation Tax @ 20% = £12k loss to HMT
Both Agent Co.’s Turnover AND costs will increase by £60k, net nil = no change to HMT
Net gain to HMT = £12k

But that’s just the two taxes perspective, there’s a storm of other variables that get pulled into the mix.

Thats on the assumption rates stay the same. If we're on FTC instead then the likely hood is we'd be on a lot less than the £100K. Your calculations are way off also as someone on £100K doesn't pay 40% on all income they pay 40% on everyting over the 40% threshold.

[seeourbee]

Yes, rates staying the same assumed. I know there's the threshold, that's why I took the £60k above £40k