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

[webberg]

The average salary in the UK is slightly under £30,000. Like all averages this is both useful and highly misleading.

However, an employee earning £30k a year will pay around £3.5k tax and £2.6k in employee NIC. That is around 20.3% of gross earnings.

At £60k a year, the deductions amount to around 27.6%

At £90k a year, the deductions amount to around 32.4%

At £120k a year, the deductions are around 38.1%

This is progressive taxation in practice. It may not be perfect, is certainly prone to getting things wrong from time to time and can be manipulated if income is taken in a manner that does not attract NIC.

It is however "good" political philosophy in that the more you earn the more you pay.

The cost of getting to work is these days ignored in the political philosophy. The reasoning used to be that self employed people would travel to find work and because they may find work in many different places over a period, they would both reflect that in pricing to the end client and also be entitled to a deduction so that it was just "earnings" that were taxed. That makes sense.

In more modern times however, many "self employed" people are - again for reasons of political philosophy - seen as employees who for reasons of their own or for reasons imposed by an end client, but voluntarily accepted, are more likely to be at one location or job for an extended period.

Those who are genuinely self employed can still enjoy better expenses than those who are not, but the differences are marginal now.

The reasoning used to be that an employee would probably arrange his/her life to suit the job/location of employer, especially at the higher levels of pay which implied a career being pursued.

It id however a matter of personal choice where and how you live and the tax system has been adjusted to ensure that those who choose to live close to or at reasonable cost from their work are not subsidising those who choose to live further away or incur more cost in getting to work.

Whilst you can argue that this is going to throw up oddities and anomalies, it works in perhaps 95% of instances.

An employer paying £30k a year actually has a real cost of close to £33k. The Government takes around 27.4% of that in tax, em'ee and em'er NIC.

At £60k, the employer cost is £67k and the Government gets 35.2%

At £90k, employer cost is £101k and Government is at 38.9%

At £120k employer cost is £135k and Government is at 45.1%

The employer may get some CT relief - depends if they are profitable.

With the change to IR35, the end client who has been paying £30/60/90/120k and leaving you to pay the tax etc is suddenly faced with an extra tax and NIC bill. If you are also looking to maintain "take home" (itself a hopelessly subjective and manipulated measure and hardly reliable) then the end client/employer faces a further increase in cost.

Some will pay. Some may even chose to indulge your choice as to where you live and increase your salary again to allow expenses from net income. I suspect not many though.

I suspect many will say that their budget is £30/60/90/120k and your tax and choice of where to live and therefore the cost of getting to work, is your affair. The fact that the Government has changes the rules should not mean that the end client/employer should pay you more. It is not for the end client/employer to interfere in Government policy.

Whilst I have sympathy for the OP the truth is that he/she is victim of Government policy which has had the unintended(?) consequence of allowing the end client/employer to keep their costs stable at the expense of the individual worker.

Is that reasonable? Depends on your point of view.

If you are perhaps of a leaning which says people in similar situations should be contributing financially to the society we want to live in with similar amounts of tax, then the reforms to IR35, no matter how badly handled and managed, are achieving this.

If you are of a leaning that says that if you have a particular talent/skill that attracts a premium in the market or you have chosen to live a long way from work for personal reasons, but because of that particular talent/skill, you should be permitted to pay a lesser sum, then IR35 reform is a shock.

The equation between end client/employer and contractor/employee will require some time to normalise (perhaps two or three contract cycles) and of course if you genuinely do have a unique or unusual or highly desired skill, your bargaining power is now greater.

In the meantime, I'm afraid that many contractors are going to feel this adjustment to what arguably Government wanted to achieve in 2000, very deeply.

Whether we like it or not, the present Government has chosen to make these changes. In doing so, they are perhaps only advancing what Governments of all colours have done in the last 20 or more years. DO we think another Government would have shied away from this reform.

As with all things political in a democracy, if you don't like the situation, your choices are to wait 5 years and vote for somebody else, get onto the streets (and social media) and campaign for a change, go and get elected and change the policy from within.

I make no judgement on choices made or reactions to the upcoming reform, but if it helps, the facts above may bring things into perspective.

[eek]

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.

I'm not sure the bar is actually that high - the bar for pierce the corporate veil is fraud, it's possible that HMRC could argue knowingly claiming to be outside when you were not is fraud.

So my current thinking is to close down company fast via MVL and go brolly probably with same agency if they won't let me switch. Or if this is still considered high risk, potentially go perm with client.

If it is better that I should leave now, as previous posters have said, I don't think I've come across articles that reflect the same view. Most seemed to have cited HMRC - twice stated - advice that it won't go after previous years. Is there any tax or ir35 professional articles that suggest the same course of action. While I respect and value your advice and it certainly has me now reviewing my options, the same advice needs to come from a professional source. I'll try and contact a few more ir35 tax professionals to gauge what they think I should do going forward.

Thanks again for the replies.

Also thanks to Jolie and escapeUK for your input and support - I couldn't understand the attacks and how comparing someone on £15k to those earning more - it wasn't handed to us on a plate and like you've said - we've worked bl**dy hard to get to where we are, a lot of sacrifice is made, esp those of us with families, it gets a lot harder trying to keep up with the latest tech and still maintain a semblance of family life.

If you have to stay (but you really shouldn't) - go permie with a contract that shows you are truly inside. Do not go via an umbrella as that is very likely to be picked up.

HMRC have 4 years to go after money - not the 1 year they have very careful about talking about in all conversations so far. They are now also going to have to go after money from anywhere they can as I think this coronavirus is going to destroy tax revenue for years to come, hence they will be a lot of pressure to collect anything they can.

And yes I'm pessimistic, dealing with HMRC makes you that way inclined.

[northernladuk]

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.

That's contracting for you I am afraid. It's exactly what we all do. Those that don't are the permatractors that this is targetting. No time to be playing comfy with the client.

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

Even WiB and his great advice begs to differ. Read his last line. What you meant to say is 'Most risky way forward'

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.

If that helps you sleep at night...

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.

It takes awhile. Fast isn't an option.

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.

Very unlikely you can change agency just to suit your tax position. Sorry, I meant to say, not a chance.

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.

I think he (and everyone else) said leaving is the least risky of options.. but I'm guessing you don't want to do that because you are nice and comfortable at the client.

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

Good luck with that... and you've got 3 weeks to sort everything out so I wouldn't be waiting for this while making a decision.

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.

That's correct. There is still risk even if you go. You were still caught and will lose but they might not find you if you've cut ties with the client.

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.

Not a chance. Time and effort? When a client stuffs a contractor and puts him on the line for 6 figures of back tax. You think they will pass that up? Time to stop kidding yourself fella.

Is the main reason people are saying I'm inside is purely down to the time (~4 years) I've been with the client and everything else is irrelevant?

Nope but that's a very strong indication of what your determination will be for a number or reasons. It's also the exposure you'll have to face in less than three weeks time if you get caught outside/inside. You are almost out of time so not really worth spending a long time discussing all the ins and outs.

So my current thinking is to close down company fast via MVL and go brolly probably with same agency if they won't let me switch. Or if this is still considered high risk, potentially go perm with client.

Very high risk. Top of the tree. You've gone outside to inside with the same client. This is the easiest pick of the bunch and you've a lot of tax you potentially owe so even higher up the tree. All the above does is attempt to hide from HMRC. Reading all this you've still got head in the sand syndrome. The answer to this question has been said by nearly every poster in this thread yet you are still not quite getting it.

If it is better that I should leave now, as previous posters have said, I don't think I've come across articles that reflect the same view. Most seemed to have cited HMRC - twice stated - advice that it won't go after previous years. Is there any tax or ir35 professional articles that suggest the same course of action. While I respect and value your advice and it certainly has me now reviewing my options, the same advice needs to come from a professional source. I'll try and contact a few more ir35 tax professionals to gauge what they think I should do going forward.

Please do but be very quick. Remember, your only mitigation here is to avoid HMRC. Even the tax specialists won't know and they will be very wary of telling you a hard fact in case they are wrong and you can come back and sue them.

[GummiBear]

About half a GDP is funded by the State. Somebody has got to stump up for that. It sounds a lot but actually it is nowhere near enough which is why we've got less hospital beds, MRI scanners, doctors etc etc than half of the rest of the world.

The rule we live by is poor people pay relatively less so rich people have to pay relatively more. Unfortunately you're in the rich category.

It hurts but schools cost a lot. The NHS costs a lot. State pensions cost a lot. The Police, Army, Navy, Airforce, Border Force etc etc cost a lot. When you voted for Brexit you saddled us all with literally billions of wasted expenditure. These all have to be paid for. It's painful but they're not punishing you now; you were getting away with unfair contributions before. Now they're making you pay as much as a permie.

You can't rant at HMRC. The cause of your financial stress is you. You can't charge a high enough rate to fund the lifestyle you want, the lifestyle you once had. You voted Conservative. That means you voted for rich people to stay rich. The working class like you don't get any freebies. They're just sealing up that hole in the dyke.

Your post is so presumptions, full of prejudice and assumptions - you have absolutely no idea about me or my values!

You don't even know me - yet you totally assumed I voted for Conservative - and worse still Brexit!

Your post says more about your own prejudicial mind of what you think of people who have worked hard and sacrificed a lot!

Your post is quite disgusting!

[GummiBear]

HMRC's advice is time limited - it always says this year meaning the tax year 2020-21.

HMRC don't actually need to do anything until April 2024 - that gives them a lot of time to go after year without breaking their "word".

Edit - but the decision is all yours - we are just giving you our opinion - albeit an opinion based on watching HMRC for a lot of years and observing exactly how they operate and their very careful use of words that mean different things to them then they do to the general public (fraud being a word that HMRC regard as a far more general term than people on here think it means).

HMRC only said they won't go after people IF there's no suspected fraud and I'm sure that HRMC classes almost everything as fraud, especially carrying on for 4 years claiming to be outside when in fact inside. CEST doesn't always give an inside result, but it doesn't really matter as HMRC will ignore CEST results if it says outside, and will use it against you if it suits them. They also don't care that you can be dropped at any point, that you work from home etc. as by default they class everyone inside and it's up to you to convince them and the tribunal otherwise. They will basically claim you are under control or some sort of supervision, that there's a mutuality of obligation, especially as you've taken every extension offered and that you haven't got the right of substitution.

As for masses of contractors simply bending over and going PAYE / inside at the same client - yes that is indeed true and exactly what HMRC wants / will be going after, they will make millions out of retrospective investigations and announce this IR35 change as a massive success.

Hand in your notice asap and look for another, most likely inside, contract elsewhere as that reduces the risk of retro investigation significantly.

OP,

I warned many Permie-Tractors years ago that change was coming. The response was in nearly all cases "Oh I leave all that to my accountant." Believe me your accountant does not know you, he does your books and information you provide. End of. It says as much in the preface of your accounts.

You need to grasp how serious the situation is. You are a disguised employee not in business of your own accord. You've done 4 years at one location, and because of the changes due in April, you are looking to go PAYE at the very same. No business owner would contemplate such a scenario because of the known tax implications.

You need to be gone and then worry about finding a new role. The alternative is a trap door set by HMRC, and they are just waiting for it to drop.

OP, despite the great certainty with which people declare things here, no one actually knows what HMRC will do, and when. But I'll give you my opinion, FWiW.

I think if investigated for historical contracts you will likely lose, unless your argument is better than anything you've stated here. And I don't think QDOS or anyone else is likely to cover you, either (again, unless your argument is better than stated here). You should plan on losing the case if investigated, and not having had timely contract reviews, you are at risk of not only losing the case and having tax and interest, but also penalties.

That's true whether you stay with the same client or not. The inside determination will sink you.

So, now let's talk about the risk of investigation.

I think that if you keep your company open and work through it on an inside contract with the same client through the same agency, you are at very significant risk. Whatever HMRC said, I suspect they'll be looking for people like you and find you.

I think that if you go brolly with the same client through the same agent, you are also at pretty significant risk.

I suspect that if you go brolly with the same client through the same agent, AND you get your company closed quickly, you improve your chances of safely getting it closed. And if it is closed, I think you greatly reduce the chance of HMRC bothering to investigate. They don't know that you don't have contract reviews, etc. So it's not until they start the investigation that they will find that they might be able to go after you personally, and not knowing that, they'll probably just chase more obvious targets.

I suspect if you go perm with the same company that there's a decent chance of escaping their eye, and that you could get your company closed and escape.

I suspect if you mess around with MVL to try and extract funds from your company that you are extending the time they have to find you. The best thing you can do, if you are going to stay with the same client in any way, is to close the company as fast as possible, even if it means paying more in dividend tax to do so. Get your accounts done, pay your Corp Tax, VAT, any PAYE, and make yourself a nice dividend payment, then close your company ASAP.

If you do that I think there's a reasonable chance the company is closed before HMRC come looking, and that when they come looking they say, 'Oh, this guy saw us coming, too much trouble, we'll go after easier targets,' and move on.

Again, we don't KNOW that HMRC will come looking. We don't know, if they do, when they will. But if they are going after historical contracts of people who've gone inside/brolly/perm, I suspect in the next year their primary target will be the public sector guys because time is running out for them to chase them.

Mostly, I agree with those telling you to move or you are taking a huge risk. But if you don't move, you can at least mitigate the risk somewhat by closing your company ASAP.

Thank you all so much for taking the time to reply and give advice.

In particular, WordIsBond - absolute stellar post, and sums up the situation so perfectly the advice is spot on - I would definitely buy you a pint or two for this post! Thank you!

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.

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.

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.

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.

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.

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 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.

Is the main reason people are saying I'm inside is purely down to the time (~4 years) I've been with the client and everything else is irrelevant?

So my current thinking is to close down company fast via MVL and go brolly probably with same agency if they won't let me switch. Or if this is still considered high risk, potentially go perm with client.

If it is better that I should leave now, as previous posters have said, I don't think I've come across articles that reflect the same view. Most seemed to have cited HMRC - twice stated - advice that it won't go after previous years. Is there any tax or ir35 professional articles that suggest the same course of action. While I respect and value your advice and it certainly has me now reviewing my options, the same advice needs to come from a professional source. I'll try and contact a few more ir35 tax professionals to gauge what they think I should do going forward.

Thanks again for the replies.

Also thanks to Jolie and escapeUK for your input and support - I couldn't understand the attacks and how comparing someone on £15k to those earning more - it wasn't handed to us on a plate and like you've said - we've worked bl**dy hard to get to where we are, a lot of sacrifice is made, esp those of us with families, it gets a lot harder trying to keep up with the latest tech and still maintain a semblance of family life.

[Cirrus]

So for ... almost half of the year! - every penny I earn is going straight to the Tax Man! - How on earth is that fair? - how do they call that paying "your fair share of taxes!"

About half a GDP is funded by the State. Somebody has got to stump up for that. It sounds a lot but actually it is nowhere near enough which is why we've got less hospital beds, MRI scanners, doctors etc etc than half of the rest of the world.

The rule we live by is poor people pay relatively less so rich people have to pay relatively more. Unfortunately you're in the rich category.

It hurts but schools cost a lot. The NHS costs a lot. State pensions cost a lot. The Police, Army, Navy, Airforce, Border Force etc etc cost a lot. When you voted for Brexit you saddled us all with literally billions of wasted expenditure. These all have to be paid for. It's painful but they're not punishing you now; you were getting away with unfair contributions before. Now they're making you pay as much as a permie.

You can't rant at HMRC. The cause of your financial stress is you. You can't charge a high enough rate to fund the lifestyle you want, the lifestyle you once had. You voted Conservative. That means you voted for rich people to stay rich. The working class like you don't get any freebies. They're just sealing up that hole in the dyke.

[WordIsBond]

If HMRC don't play by the rules, then we don't have to either. To what extent you take the piss depends on your appetite for risk.

The guy with the loaded shotgun may not play by the rules but if he's telling the other guy to play by then and the other guy refuses, he's a fool.

[WordIsBond]

OP, despite the great certainty with which people declare things here, no one actually knows what HMRC will do, and when. But I'll give you my opinion, FWiW.

I think if investigated for historical contracts you will likely lose, unless your argument is better than anything you've stated here. And I don't think QDOS or anyone else is likely to cover you, either (again, unless your argument is better than stated here). You should plan on losing the case if investigated, and not having had timely contract reviews, you are at risk of not only losing the case and having tax and interest, but also penalties.

That's true whether you stay with the same client or not. The inside determination will sink you.

So, now let's talk about the risk of investigation.

I think that if you keep your company open and work through it on an inside contract with the same client through the same agency, you are at very significant risk. Whatever HMRC said, I suspect they'll be looking for people like you and find you.

I think that if you go brolly with the same client through the same agent, you are also at pretty significant risk.

I suspect that if you go brolly with the same client through the same agent, AND you get your company closed quickly, you improve your chances of safely getting it closed. And if it is closed, I think you greatly reduce the chance of HMRC bothering to investigate. They don't know that you don't have contract reviews, etc. So it's not until they start the investigation that they will find that they might be able to go after you personally, and not knowing that, they'll probably just chase more obvious targets.

I suspect if you go perm with the same company that there's a decent chance of escaping their eye, and that you could get your company closed and escape.

I suspect if you mess around with MVL to try and extract funds from your company that you are extending the time they have to find you. The best thing you can do, if you are going to stay with the same client in any way, is to close the company as fast as possible, even if it means paying more in dividend tax to do so. Get your accounts done, pay your Corp Tax, VAT, any PAYE, and make yourself a nice dividend payment, then close your company ASAP.

If you do that I think there's a reasonable chance the company is closed before HMRC come looking, and that when they come looking they say, 'Oh, this guy saw us coming, too much trouble, we'll go after easier targets,' and move on.

Again, we don't KNOW that HMRC will come looking. We don't know, if they do, when they will. But if they are going after historical contracts of people who've gone inside/brolly/perm, I suspect in the next year their primary target will be the public sector guys because time is running out for them to chase them.

Mostly, I agree with those telling you to move or you are taking a huge risk. But if you don't move, you can at least mitigate the risk somewhat by closing your company ASAP.

[Jolie]

HMRC determine the rules, ignore them when it does not suit, and apply them retrospectively.

If HMRC don't play by the rules, then we don't have to either. To what extent you take the piss depends on your appetite for risk.

This reminds me of when speed cameras were first introduced. The police sent people a notice of intended prosecution with a witness statement, which you were required to sign by law. Most people just said okay, we broke the rules, signed and paid up. There were a few, shall we say, who noticed the glaring error in their scam, and successfully avoided any of them or the points.

The point is, that all laws and rules should be challenged and frequently, to ensure those jobsworths in charge of enforcing them are forced into line.

Why is it most posters here just don't get this?

Oh we do get it, believe me. The fact that Hector doesn't play by the rules and will take retrospective action is the main driver to get the hell out and run. I want a life where I can sleep easy at night. Doesn't mean I am not prepared to fight, but I will do so from afar, because ultimately in the end I will have the last laugh.

[BrilloPad]

If the OP chooses to stay he will have no choice but to fight HMRC and I suspect (heck, I know) he would lose.

As for the rest - life is unfair, deal with it and if you can move abroad that's up to you.

Good point. Except to say that while I wil lose to HMRC I intend to fight every step of the way.