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

[WordIsBond]

NLUK is right. You are much more vulnerable as a result of what's happened. An agency swap helps. But you really, really need to get your company closed.

HMRC needs to do something with their time for the next twelve months. They will likely start asking clients who their contractors have been and whether they made determinations. Their promise not to pursue historical stuff just got put on hold.

The change might help a lot of people over the next year but it might put those at historical risk in a worse situation. There's no reason for HMRC to pretend that they aren't going after you now. They don't have to pretend they are only chasing fraud cases. They just have to ratchet up pressure on clients to tell them about any determinations they've made. Why won't they?

[northernladuk]

Nothing has changed fella. Client now doesn't have to issue SDS and all that but they've already admitted its inside. No changes in the legislation will change that.

All you get to do now is continue to deny the facts of the engagement, stuck your head in the sand and have an even bigger headache when it hits again.

But fill your boots. You weren't going to listen to us anyway.

[GummiBear]

Woo-hoo!

Woo-hoo!! - just hearing news that IR35 has been postponed till April 2021!

Just an update, had a chat with Agency earlier, at a more senior level, they are now warming to the idea of doing some sort of contractor swap with another agency - so looks good on this front.

But might all be a moot point, if I can get another 6 months, can then prepare and have time to find another contract elsewhere.

Not had time to catch up with all the comments, will have a read through and respond back.

Thanks for all your support and advice. This forum rocks!

[WordIsBond]

As for the rest of your argument - if a contractor is being paid £400 a day (including employer NI) compared to a permanent member of staff being paid £55,000 a year or even £60,000 there is a significant difference in take home pay in return for the flexibility and lack of rights.

Now if the contractor is on £300 a day compared to a member of staff on £55,000 a would accept your argument but that isn't the case - the end client / agency is still paying a premium for the flexibility.

The question is not whether the contractor gets a difference in take home pay, or even whether it is significant. Nor is the question really whether the employee or contractor pays more tax. The question is whether, if as we are continually told it is "fair" for the employee and the contractor to "pay the same tax for the same work", that the employee should get something tax-free that the contractor doesn't.

Those rights that the employee gets have value, right? How much? Well, your distinction between £300 and £400 a day suggests how much you think those rights are worth, but they aren't valueless. Why does the contractor have to pay tax on that value and the employee doesn't?

Your IR35 contractor on £300 / day works 220 days / year, perhaps. So he pulls in £66K, for sake of discussion. His £11K premium is cash-in-lieu of rights. He's probably not a great negotiator if that's all he's getting compared to an equivalent permie but it works for discussion.

That's close to 20% of his fee that is cash-in-lieu of rights. For these two to be taxed equally, he should be able to deduct about 20% of his fee from his deemed payment. That would be "fair", and he'd actually be paying the same tax as the permie.

Now, let's talk about the guy who negotiated better and got £400 day. He's on £88K for the year. If he's inside, too, but got to deduct 20% to reflect cash-in-lieu of rights, he'd be paying tax on £70K. He'd still be paying a lot more than the permie, but that's because he negotiated a better deal.

The permie would still get his rights tax-free, but at least the contractor would get a compensating allowance to reflect that. That's as it should be. Going inside would still be a hit but a lot of people should have been inside anyway. This is an ugly, ill-conceived reform that has done a lot of damage, but a lot of contractors are ending up inside where they should be. The problem going forward, after the upheaval is over, is that "inside" goes too far.

And that's why many contractors will just get out of the game. If you negotiate a premium to compensate you for the lack of rights and the government takes half or more of that premium, for many people it just won't be worth it anymore.

[WordIsBond]

Even in the context of the present debate, I cannot agree that the above is true.

My view is that over a reasonable period of say 5 years the tax paid by employee and contractor, even where a PSC was used, is about the same.

Can we agree that the context of the present debate is whether IR35 is an excessive, unfair, even punitive solution to the problem?

If that's the context, then the only comparison that matters is between the contractor who is inside and the employee. That is the only contractor I've been discussing in this thread.

If we are talking about inside-IR35 contractors then they will ALWAYS pay more tax than the equivalent employee unless they are so stupid as to work for the same rate as the employee. If they make more than that employee they will also pay more tax (and at their highest tax rate). That's the way IR35 works.

This is so self-evident that I can only assume you've lost the context or you wouldn't have said that.

If you think we've been talking about comparing outside contractors to employees then it's no wonder we're at cross-purposes. I've never argued that outside contractors are taxed unfairly. In fact, I've suggested that it would be better if they were taxed marginally more, to end tax-motivated incorporation, and then IR35 could just be jettisoned, simplifying the life of everybody and rendering about 1/3 or more of the discussion on this website moot.

About 7.5% more on dividend tax, with an extra dividend allowance for pensioners, would just about do it, and would make everyone's life easier, including HMRC.

[gables]

I doubt if any contractor has ever said to themselves 'I am going to set up a ltd company to avoid paying NI'. Agencies and clients are the ones who have always dictated as a condition to work with them you must have a Ltd Cpy.

They may not explicitly say that, but then within about 30 secs they've decided on low salary\dividends\spouses as shareholders to avoid paying NI, and also fail to operate inside IR35 when a contract is clearly caught, the reason to pay less tax.

[gables]

In which case they should be immediately issuing SDS appeals on the basis of proven no Mutuality of Obligation (although being honest I suspect most contractors are going to be binned rather than furloughed as companies are likely to be really pulling the shutters down and removing all unavoidable costs).

As for the rest of your argument - if a contractor is being paid £400 a day (including employer NI) compared to a permanent member of staff being paid £55,000 a year or even £60,000 there is a significant difference in take home pay in return for the flexibility and lack of rights.

Now if the contractor is on £300 a day compared to a member of staff on £55,000 a would accept your argument but that isn't the case - the end client / agency is still paying a premium for the flexibility.

Ha ha, and don't I know it

[webberg]

Yet the contractors pay much higher tax.

Even in the context of the present debate, I cannot agree that the above is true.

My view is that over a reasonable period of say 5 years the tax paid by employee and contractor, even where a PSC was used, is about the same.

The real difference is Em'er NI.

An outside IR35 arrangement sees no such NIC.

An inside one does and end clients view this as additional cost.

It is a good test of what you are worth to the end client. Are they willing to pay that additional cost? are they not and therefore want you to pay it? Are they willing to share it?

[WordIsBond]

Once again you are looking at it from your (a contractors) point of view rather than HMRC or the client's point of view - clients were able to bypass employer NI by using contractors, the FLC didn't solve the issue HMRC care about and that is keeping the employer NI firewall in place so it cannot be avoided....

I get that. Doesn't change my point. I'm not advocating the FLC, I thought it was a stupid idea. HMRC was never going to go for it because it was optional.

Human nature says that if you make something too expensive people will go to great lengths to avoid it. If HMRC hadn't made IR35 so expensive, if they had structured it to take some account of the difference between employees and contractors, you'd have had better compliance. They only gave a 5% allowance, which didn't begin to cover the difference. They've even taken that away now.

The result is that people will stop contracting or fall prey to those who devise all kinds of shady schemes. Then, they'll get caught, and there will be that many fewer contractors left. Death of the flexible workforce.

[eek]

I'm talking about a policy that is unfair and yes, in my view, punitive. Many contractors inside IR35 will be sent home unpaid in the coming weeks while perms will receive full pay. Yet the contractors pay much higher tax. It's a negative incentive to contracting and is likely to significantly undermine the flexible workforce in the UK. It's just not worth it. Get a good perm job and have the security.

In which case they should be immediately issuing SDS appeals on the basis of proven no Mutuality of Obligation (although being honest I suspect most contractors are going to be binned rather than furloughed as companies are likely to be really pulling the shutters down and removing all unavoidable costs).

As for the rest of your argument - if a contractor is being paid £400 a day (including employer NI) compared to a permanent member of staff being paid £55,000 a year or even £60,000 there is a significant difference in take home pay in return for the flexibility and lack of rights.

Now if the contractor is on £300 a day compared to a member of staff on £55,000 a would accept your argument but that isn't the case - the end client / agency is still paying a premium for the flexibility.