Does anyone else feel like they are being financially ripped by the tax-man

[eek]

If IR35 made any reasonable allowance for the value of employment rights not being taxed, since they aren't taxed on employees, then you could make a case that it is fair. The current situation is in no way "fair." It's punitive.

That argument leads to the FLC - an idea so insane that I really hoped I would never have to think about it again.

A lot of poorly paid people aren't treated differently in the gig or self employed industry, just because we are well paid doesn't make us any different from others who don't get employment rights (and often don't get paid extra for losing them).

And as I accept myself and spend time telling people - life is unfair, deal with it...

[WordIsBond]

There is no 60% tax rate in this country. Top rate is 45%.

You're bandying words but accomplishing nothing.

The person who earns £100,100 pays £60 more than the person earning £100,000, correct? So your extra £100 in income buys you an extra £60 tax bill. That's a 60% tax rate in reality no matter how HMRC wants to dress it up.

And by extension, the person who would get £100K as a permie, and gets an extra £100 to be a contractor and not have employment rights, would pay an extra £60. So his cash-in-lieu in such a case is confiscated at the rate of £60.

You may say it is illogical but he's lost his employment rights and all he has to show for it is £40. £38 by the time you factor in EE NI. £25 if he's with a small client and has to pay the ER NI.

You can say it's not logical but he only has £25 more than the permie who has the employment rights. Change that number from £100 to £10K and it changes nothing. The permie earning £100K still gets his employment rights tax free and the contractor pays £7500 of his £10K to HMRC, and only gets £2.5K after tax. There's really no argument here, that's what happens. For an inside IR35 contractor in that band of income, HMRC takes 75% of every additional pound he gets. You'd be a fool to take an inside contract for £120K if you had the option of taking a perm salary at £100K. You get £5K extra after tax for the loss of full employment rights.

If IR35 made any reasonable allowance for the value of employment rights not being taxed, since they aren't taxed on employees, then you could make a case that it is fair. The current situation is in no way "fair." It's punitive.

[WordIsBond]

I know more about this than most.

Just to clarify, it is HMRC that have conflated avoidance with evasion and for some reason have been allowed to get away with it. They have to be stopped. Many posts I have seen so far on this thread(and elsewhere) just encourage HMRC.

Sorry, but what you said here was idiocy.

You were paid more for your contract than for being permanent. You want to have your cake and eat it.

Tax evaders. Pay your fair share.

There's a reason for contractors to be paid more than for being permanent, and reasons why not all of that extra should be taxed. And if you call it tax evasion to not pay tax on every penny of the extra, you're an idiot.

[webberg]

If he would get £100K as an employee and £120K as a contractor, he's getting an extra £20K as cash-in-lieu. Of that £20K, he's paying 60% in income tax (because of the withdrawal of his allowance). He's paying 2% EENI, right?

That's grossly unfair.

There is no 60% tax rate in this country. Top rate is 45%.

Your assumption on that £20,000 over the £100,000 PA limiter is simply illogical and incorrect.

I agree that the PA falls if you go over £100,000 but to apply the reduction just to that part over £100k makes no sense.

More logical is to calculate the effective rate of tax an every £. In this case £120k has an effective rate of tax of around 38.1% - a long way short of 60%.

[BrilloPad]

If you don't wish, or lack the capacity, to engage your intellect enough to understand the issue, you should at least refrain from accusations of evasion, which is a criminal offence.

I know more about this than most.

Just to clarify, it is HMRC that have conflated avoidance with evasion and for some reason have been allowed to get away with it. They have to be stopped. Many posts I have seen so far on this thread(and elsewhere) just encourage HMRC.

[WordIsBond]

You were paid more for your contract than for being permanent. You want to have your cake and eat it.

Tax evaders. Pay your fair share.

If you don't wish, or lack the capacity, to engage your intellect enough to understand the issue, you should at least refrain from accusations of evasion, which is a criminal offence.

[WordIsBond]

This is a retrospective QDOS review designed to get an outside verdict - I suspect HMRC would treat it with all the contempt it deserves..

Not the way I read it. Maybe he'll clarify. I read it as the client was involved and it could change things. That sounds prospective.

[WordIsBond]

I suggest that's not true.

£120k a year (day rate just north of £500) produces tax of around £45.7k (38.1%) and employee NIC (at employee rates) of £15.387 for a combined deduction of 45.1%.

So you get 55%.

I suspect you are conflating em'er NIC into this?

Yes and no.

I was talking about the cash-in-lieu compensation for employment rights. That's the top slice of a contractor's income.

If he would get £100K as an employee and £120K as a contractor, he's getting an extra £20K as cash-in-lieu. Of that £20K, he's paying 60% in income tax (because of the withdrawal of his allowance). He's paying 2% EENI, right?

Your numbers are wrong because I'm talking about the unfairness of tax on the cash-in-lieu, which is the top slice. We could debate about the unfairness of being taxed at the same rate for his other income, but there's not really any debate about the unfairness of being taxed for something which employees get tax-free.

And if he's with a small or foreign client, he's paying 13.8% ERNI as well. If not, then the fee payer is paying that but it's been docked from his rate, so ultimately, he's paying that, too, IMO. So yes, I'm conflating that in, too. I think appropriately though you might disagree. In my view, anything that a client is willing to pay for my services is part of my fee, even if HMRC jumps in between and grabs some of it first. It's what my services are worth to the client and so ultimately ERNI comes out of my fee, by whatever mechanism it is paid.

If you want to argue differently, it's still 62% tax if it falls between 100-120K, tax that employees wouldn't have to pay. That's grossly unfair.

[eek]

The QDOS review and the client being happy to sign off are two very separate things.

If you get an outside QDOS review, even if the client won't sign off, you can probably forget about piercing the corporate veil. You still want to get the money out of your company as quickly as possible, because if it is in the company and HMRC opens an investigation it's too late.

This is a retrospective QDOS review designed to get an outside verdict - I suspect HMRC would treat it with all the contempt it deserves..

[WordIsBond]

I would definitely buy you a pint or two for this post!

Better buy for NLUK instead, he had to admit I gave good advice and is probably still in pain from it.

I would very much like to stay with this client as I've built up quite a good reputation, the people are friendly and I have a fair amount of say on what goes on and how things are done, flexibility to work from home or office etc. I would lose all this, if I were to move to another client and would have to start at bottom and work my way back to the top.

Main way forward is try to mitigate risk as much as possible whilst staying with the same client.

Ok, pretty clear you've decided, just recognise the risk is a very expensive one if it blows up in your face. You should figure out just how much IR35 will cost you if you lose a case, add interest, add penalties (since you don't have reviews, do you at least have CEST determinations showing you outside?).

Once you know that amount, then if you succeed in closing your company and get the funds out, put that much aside for at least four years (I'd say 7, personally). Don't spend them, you may need them if HMRC find you.

Closing the company is exactly the advice my accountant was saying as a way to very much mitigate the risk of an investigation - WordIsBond very much in line what you have stated - so even though I might lose any IR35 case - the fact the company is closed - would set a higher bar of HMRC to chase and transfer liability from company to individual - and there are prob easier cases for them to chase.

To be clear, I don't like your chances of fighting off an attempt to pierce the corporate veil if you lose an investigation, and don't have contract reviews. I DO think that if the company is closed the likelihood of an investigation happening at all is very low. HMRC has never started an IR35 investigation on a closed company and I do not think they are likely to now -- there will be easier things for them to chase.

Though I was thinking of going down the MVL route - try to get one done as fast as possible.
There is a quite a lot of funds in the company as I haven't been taken a lot out in dividends - so the 32.5% would be an eye-watering amount.

Ok, just recognise what you are risking. Do the maths I suggested above. Compare that to the 32.5%. It's your choice, I don't know what the likelihood is in either case. It's not a risk I'd take personally but I'd have been making some different decisions all along.

Congratulations on having such a big reserve.

One possible option I was trying to consider was to go brolly - same client - but try to change agency - I understand, agencies send quarterly data to HMRC with quite a lot of detail of turnover along with personal details. Though Agency, only thinking of their own bottom line, wouldn't release me - had thought they could do some sort of contractor swap with another agency serving the client. It might be possible if I push harder.

If you really are going to follow the course you've described (staying, going brolly, going MVL) there's a chance you can delay HMRC chasing you by changing agencies. We don't know for sure -- they found the GSK guys and we don't know how, so they may will find you. But it may take them longer if you change agencies.

So change agencies. Don't just say "it might be possible." Make it happen. Agencies want money. You've got loads of it in your reserve. Buy them out. Do you know what their fee is? £100 / day, maybe? Tell them you want released from the handcuffs and ask what compensation they'd want. They'll probably claim 6 months worth, that's maybe 100-120 days at £50-100 / day. So maybe not more than 10K. That's real money, of course. How much is at risk?

Offer half of what they ask for and reach an agreement. As I said, I would not be in your position, but if an alternate world dropped me in your position I'd gladly pay £5-10K to change agencies, and do everything I could then to get my company closed.

There is an option to go perm with the client - but the salary is significantly lower - I think you were alluding to this being the least riskiest of options.

It is, in my view, the least risky way to stay. It's still immensely more risky than leaving. If you stay in any way, you put years of IR35 tax at risk.

The QDOS review is being done with the client, if this does, by some miracle, come back as being outside, and the client is happy to sign off as outside - does

The QDOS review and the client being happy to sign off are two very separate things.

If you get an outside QDOS review, even if the client won't sign off, you can probably forget about piercing the corporate veil. You still want to get the money out of your company as quickly as possible, because if it is in the company and HMRC opens an investigation it's too late.

The outside review would also help your chances of winning that investigation, even if the client won't sign up. What they are saying then is not that you were inside but that they don't want the risk going forward. Fair enough, that's their decision, but at least it doesn't put you in the same jeopardy historically.

The advice that previous posters have given that I should leave as I'm high risk if I stay - isn't this advice based on the old paradigm i.e. where all contractors were operating via PSC - HMRC therefore had reason to go after contractors and try to claw back missing NI/tax.

Under the new paradigm, where all contractors are pretty much brolly/PAYE and paying full whack NI/tax - with HMRC coffer's over-flowing with loot - isn't this job done for HMRC and an end to IR35 - are they really going to put time and effort going after retro - when that effort can now be diverted to perhaps some real serious fraud - or perhaps are we low hanging fruit and easier for the picking.

This all strikes me as likely very naive. If you stay you are low hanging fruit and easier for the picking.

Their coffers are never overflowing but if they were they'd likely (IMO) use the money to hire new inspectors and go after people like you who go outside to inside.

It's what I would do if I were them. They believe that such people should have been inside all along and as such, they believe you've been underpaying taxes, and now there's evidence they can use to prove it. You might have noticed that they need even more money for the NHS, which was insatiable before. You have money, they want money, and they think they have a winning argument.