Staying in the same public sector contract after April 2017

[MarkT]

No matter what - I'll just go the umbrella route and stay contracting. Still earning more and still free to make my own decisions.

Not sure what is a better solution to be honest.

I should add - being a contractor for 15 years has become less and less profitable, however, it's still a lifestyle choice and it's still far better paid (even if being paid via PAYE) than working permanently.

The idea of shutting down my Ltd, opting to be inside IR35 and having no more worries about expenses, 2 year rules, FRS, Income Shifting and the like kind of feels very tempting.

It's a case of £550pd vs £70k a year and being told when to take holidays, performance reviews and the like. Easy one surely.

[gables]

I should add - being a contractor for 15 years has become less and less profitable, however, it's still a lifestyle choice and it's still far better paid (even if being paid via PAYE) than working permanently.

The idea of shutting down my Ltd, opting to be inside IR35 and having no more worries about expenses, 2 year rules, FRS, Income Shifting and the like kind of feels very tempting.

It's a case of £550pd vs £70k a year and being told when to take holidays, performance reviews and the like. Easy one surely.

Not sure about the shutting of Ltd etc but I do get where you're coming from.

For me, to net the monthly IR35 amount of my current rate (which is not high at all) on a permie salary I'd need £62K, where I am currently the majority of IT bods are in the range £32k-£45k with only very senior bods at the £62k mark. before anyone says, I know there's more to it than just monthly net, but its the monthly net that pays the bills.

[youngguy]

I should add - being a contractor for 15 years has become less and less profitable, however, it's still a lifestyle choice and it's still far better paid (even if being paid via PAYE) than working permanently.

The idea of shutting down my Ltd, opting to be inside IR35 and having no more worries about expenses, 2 year rules, FRS, Income Shifting and the like kind of feels very tempting.

It's a case of £550pd vs £70k a year and being told when to take holidays, performance reviews and the like. Easy one surely.

I suppose it depends on your situation. If you have high expenses then it may not be so appealing , especially with the risk of bench time etc

550pd will get you, what...5-6k net pcm and your tax will increase 2-3 times ? That's quite a loss for many

[MarkT]

I suppose it depends on your situation. If you have high expenses then it may not be so appealing , especially with the risk of bench time etc

550pd will get you, what...5-6k net pcm and your tax will increase 2-3 times ? That's quite a loss for many

Well I currently take around £8500 or so - paying it all via a brolly I'd take £6500 or so (give or take). My wife will go back to work next year and will take around £2k a month net, so it might be a no brainer for me at some point.

Still it is better than going perm and better than taking a FTC.

[youngguy]

Well I currently take around £8500 or so - paying it all via a brolly I'd take £6500 or so (give or take). My wife will go back to work next year and will take around £2k a month net, so it might be a no brainer for me at some point.

Still it is better than going perm and better than taking a FTC.

I hear you, and I get that covers the monthly stuff. It is however an additional 20+ K in tax....for me that's my pension fund, training fund, bench fund. All of those issues go away with a perm role so contracting suddenly seems a whole lot more risky overall (I'm not saying for you specifically but in general).

[jonnyboy]

All, I said in another thread I would speak to my accountant and see what his thoughts were on the AS and IR35 going forward... I post them here (with some editing to remove parts which are of no interest to the general discussion) for comments, thoughts and information....

Yes it’s a wonderful world! And I apologise for not having a definitive answer, Simply because of the paragraph that follows.
As far we can see in the technical articles that we receive,” a worker who supplies their services to the public sector via a PSC, the public sector organisation will be responsible for paying the correct employment taxes”
At the time of writing there is as far as I can see, and advised, no legislation for the above – just what said in the 2015 Autumn statement, and ourselves, tax writers and consultants are waiting for that to appear, and my best guess is as below:
So assuming an example of a day rate of £350.00 a day would simply be taxed under the PAYE rules and your company would receive the net salary to pay to you.
It is impossible to say what tax or nic would be deducted as this would be determined by the tax code/rate of tax operated and the number of days worked. We suspect that the “employer” will be required to deduct 40%, on possibly on a week one basis, or some other code which is specific to this scenario, all of which distorts the calculation.
A simple calculation would be £350 less tax, inc nic ees 40+12 = 52% = a net of £168 to the company, plus the vat thereon, so 350 *20% = 70.00 = 168+70= £238.00
It is further complicated by non IR35 income, salary and dividends drawn from the non IR35 income .
So your personal tax position will included salary income via a P60 we believe from the IR35 “employer” a P60 from your company which when both are added together would equal the salary deduction in the accounts of your company, along with any dividends etc drawn from your company.
The income from the IR35 employer in the accounts of your company would be equal to the gross salary deduction from that source.
Added to this mix is of course the upper earnings thresholds for employees nic, and a claim should you go over that threshold be made on an annual basis, as the deduction is made per employment, our personal tax software shouts at us on this, but as we do not control your personal tax affairs it is something to be aware of in the coming years.
Once we have the legislation then we can look at the effect in more detail, I would hope that will be published early in the New Year, and as I said firstly I wish I could be definitive but I cannot until the legislation is published.

And finally (AND THIS WILL BE MISSED BY MANY): Note that any attempt to invoice in advance for services to be provided on or after 1 April 2017, to capture that invoice within the FRS, will be treated as if the invoice was issued on 1 April 2017 (para 8.2 and 9.7 of VAT notice 733).

[youngguy]

All, I said in another thread I would speak to my accountant and see what his thoughts were on the AS and IR35 going forward... I post them here (with some editing to remove parts which are of no interest to the general discussion) for comments, thoughts and information....

So are you clearer?!

Very complicated (not your accountant,this whole approach )

[jonnyboy]

So are you clearer?!

Very complicated (not your accountant,this whole approach )

Nope - the figures scare me. But I am no clearer in terms of...

1) If I have my client agree no SCD, does this effect me (yes, I know its in terms of agency risk) - so what if I have no SCD in black and white but the agent disagrees - do I have a right of appeal, can I drop the agent but still work for the same client?
2) If I do project work (I develop X at home, then install it in 6 months and charge you £500) - is factor into IR35 (I have asked my accountant, no reply as yet)
3) What about say support and maintenance payments from PS companies from work I did 4 years ago?

The consultation documents and workflow tends to suggest that in all these examples, IR35 and the changes will not impact, but then again, no-one has agreed that they are clear of IR35.

[jonnyboy]

Ok - regarding the billing for the project work, I asked my accountant if he thought this would be captured as well (as would be Support) and he felt yes, if its a PSC, it would be captured.

Then he shared the following advice nice that he had just received from Indicator, which I share in full (does not actually tell us anything we did not already know)...

INTERMEDIARIES
Public sector contractors to be hit by changes
The 2016 Budget announced that there would be a change regarding how IR35 rules would apply to contractors working in the public sector. How will the rules affect your contractor clients and what can you do to help them maintain their income?
ANNOUNCEMENT
Under the current IR35 rules (the intermediaries legislation), where a contractor provides their services via a personal service company (PSC), - either directly or via an agency or other third party - the responsibility for determining the IR35 status rests with the PSC. Failure to do this correctly is therefore not the problem of the public body, and so it may not pay too much heed to the nature of the engagement.
From April 2017, however, where public sector bodies engage the services of workers provided through an intermediary, the responsibility will be that of the engaging body, or the agency or other third party, i.e. the engager, as appropriate.
UPSHOT
What this means in practice is that the engager will be liable for paying over any associated tax and NI if IR35 should apply. The engager will therefore need to be extremely careful and make an informed decision as to whether to operate PAYE or not. It will be subject to the penalty regime for failing to do so correctly. Affected public bodies will include:
o government departments and agencies
o the NHS
o police and fire authorities
o universities and other educational establishments
This list is non-exhaustive.
RISK AVERSION
There is a very real concern that public sector engagers will adopt a highly risk averse approach, and apply IR35 on a virtually wholesale basis. This could see genuinely self-employed workers paying employment taxes and having to suffer the rigmarole of arguing and reclaiming overpayments from HMRC. It may prove difficult to argue the case once the engager has made the decision, at least without resorting to the Tribunal.
It is hoped that the government’s promised online tool, based on a simple algorithm, will mean that this is not going to be systematic (see Follow up ). However, it’s still probable that more workers will be treated as “inside” IR35 . Unfortunately, the new rules will not entitle any of your clients to employment rights if the engager decides PAYE needs to be applied.
IMPACT
Let’s review how this might affect a client that contracts with their local council via their PSC. Your client has a contract to work 15 hours per week, for 40 weeks of the the year at £100 per hour. He provides IT support and security. From his company he takes £8,000 in salary and the rest as dividends. He claims no expenses from the council.
The council informs him that due to the changes, it will be operating the IR35 rules and deducting tax and NI via PAYE from April 2017. The respective position for your client for 2016/17 and 2017/18 looks like this:
2016/17 2017/18
Income £60,000 £60,000

PAYE - -
EEs’ NI - -
Dividend tax £4,170 -
ERs ‘NI - -
Corporation tax £10,400 -

IR35 PAYE - £9,623
IR35 ERs’ NI - £5,942
IR35 EEs’ NI - £4,354

Total taxes £14,570 £19,919
Your client would therefore be £5,349 worse off in 2017/18. Note. 2016/17 rates have been used for both scenarios for simplicity. We have also assumed that the 5% flat rate deduction available under IR35 will continue to apply - though this is one area of uncertainty, as illustrated in the published consultation (see Follow up ).
ADVISING
The reality is that if an authority does go for the cautious approach, any contractor dealing with them will be in the same boat as your client. This means your client should be able to negotiate increased terms to leave them unaffected - others will be doing exactly the same so there is little chance of being priced out if the engager looks elsewhere.
Example. Your client (from above) would require the income to be increased to £109.06 per hour to leave him in the same take home position under an employment contract if forced to go “on the books” by the engager.
Pro advice. Prepare side by side calculations for potentially affected clients so that they can use them in their contract negotiations or renewals with public bodies.
IR35 algorithm
Consultation on off payroll working in the public sector
From April 2017 engagers will determine IR35 status not your clients. This could mean they are subject to PAYE as a precaution. Prepare side by side computations showing how much they would need to be paid to avoid a loss of take home income so that they can negotiate improved payment terms.
________________________________________
The next step
o IR35 algorithm
[Document]
o Consultation on off payroll working in the public sector
[Document]
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[northernladuk]

All, I said in another thread I would speak to my accountant and see what his thoughts were on the AS and IR35 going forward... I post them here (with some editing to remove parts which are of no interest to the general discussion) for comments, thoughts and information....

If you are asking your accountants about the cost of IR35 then fine. I'd be asking contract specialists like QDOS about IR35. Accountants aren't always the best people for IR35 so I wouldn't assume they are right.