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

[WordIsBond]

I also confess that I struggle to see the logic in your numbers, but there is little to be gained in pursuing that line.

It's not hard. Calculate the take home pay of someone on £110K and the take home pay of someone on £120K. It's only £3,800 difference, and that's not counting the ER NI that would be due if it were an inside-IR35 contractor.

Employment "rights" come in two forms. There are statutory rights such as sick pay, holiday pay, maternity pay, leave in some circumstances, notice periods, etc.

There are then those benefits that employers choose to offer for various reasons. These might be share/bonus schemes, buying holiday, memberships/discounts, etc.

This is a useful distinction. You didn't mention the right against unfair dismissal, which is in the first category.

Some statutory rights are available to all, employees or otherwise, even if the self employed have to wait longer and/or receive slightly less money.

Some, yes. Others, no. Let's leave maternity pay, sick pay, and holiday pay out of the discussion. Employees pay tax on that income. IR35 contractors get cash-in-lieu for those, and appropriately should pay tax on that income (assuming they really are inside IR35). I'm not talking about those employment rights.

I'd argue that a significant part of a contractor's rate is to cover the fact that he doesn't get redundancy pay, the right to appeal against unfair dismissal, termination notice, etc. An employee gets all those rights and is not taxed on them.

Employment benefits can be matched in the self employed world if you chose to pay for them. It is very much a personal choice though.

In summary, there some employment "rights" that the self employed will not have unless they pay/insure for them - but not as many as you think. In part however the contractor premium is meant to cater for this.

How many contractors use that premium to acquire the rights they are missing out on is perhaps low (I don't know as I have no data on this). But it is a choice.

Yes, indeed. But an inside IR35 contractor pays full tax on that premium whether he acquires those rights or not. An employee does not. Even if it's a BIK, he doesn't pay EE NI.

An employee might have a Relevant Life Plan. An inside IR35 contractor can't. An employee might have large pension contributions. An inside IR35 contractor can do that, too, but EE and ER NI will be paid on them. And so on.

The remaining part of the contractor premium (i.e. the additional reward over and above an equivalent employee) is for other matters. Skill, expertise, the ability to be available and unavailable at short notice, niche experience perhaps.

If we are comparing to an "equivalent employee" then skill and experience should be equivalent. Unless we are going to say that it isn't two people doing the same job in the same way who should pay the same tax.

Re: the ability to be available and unavailable at short notice, I agree. But that's part of the employment rights discussion. The client wants a flexible resource, not a permie. The IR35 contractor gives up the security of employment for cash, and is told he must pay tax on that cash. The employee gets the security, which is very valuable, and is not taxed on it.

I suggest that the above part of the premium is in reality 70% or more of the reason for the contractor premium and that many perhaps most end clients do not regard the increase as being for lost employment rights. (Indeed following that logic to a conclusion says that the role was inside IR35 anyway).

Indeed, we are talking about an inside role here.

Whatever clients might be thinking about that extra cash to the contractor, the contractors know they are being paid for giving up security and rights. Few contractors complained about the lack of rights until they were being thrown inside IR35. Now, it's all the rage to talk about rights. Why? Because we know we're giving up rights and security. We were getting cash for that. Now we're being told we should pay more tax than the people who have those rights and security. In some cases, the government is taking over 60% of that extra cash we got. Why should anyone keep doing that?

To be clear, I'm not even talking about myself here. I'm outside and only working with foreign clients for the time being.

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.

[eek]

You do realise the logical flaw in saying that because someone adopted certain policies based on a principle, that the principle itself is invalid?

IPSE might have been saying, "You might get better compliance if it weren't so punitive and you really need to stop taxing people on cash-in-lieu of employment rights, so let them exempt 20% on the deemed payment." That might actually have had a hearing.

A lot of contractors would be better off next month if they had.

Indeed. But since this whole thing is allegedly about "fairness" it doesn't hurt to point out the unfairness of their solution and at least try to get some mitigation.

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....

[webberg]

The above exchange identifies a core conflict in how contractors think and act.

On the one hand, fiercely independent and proud to be expert and from some of the comments here, difficult to manage, preferring to be their own man.

On the other, the suggestions or "advice" or views from agencies and scheme promoters are all taken at face value and not questioned. The central conflict of such parties is that they are selling product for their own benefit and often do not possess the qualifications or professional detachment needed to give advice worth the name.

Almost all contractors I know were perfectly well aware that use of a company reduced the amount of tax paid. (Not in fact true if measured over a reasonable period of say 5 years but again, this is a function of the historic view of contractors which was very short term.)

[WordIsBond]

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

You do realise the logical flaw in saying that because someone adopted certain policies based on a principle, that the principle itself is invalid?

IPSE might have been saying, "You might get better compliance if it weren't so punitive and you really need to stop taxing people on cash-in-lieu of employment rights, so let them exempt 20% on the deemed payment." That might actually have had a hearing.

A lot of contractors would be better off next month if they had.

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

Indeed. But since this whole thing is allegedly about "fairness" it doesn't hurt to point out the unfairness of their solution and at least try to get some mitigation.

[northernladuk]

Not true. When I first started contracting I used an umbrella for my first two roles before I set up my LTD. That was just a personal choice & I wasn't getting the message from agents or clients that it was essential.

Exactly same.

[northernladuk]

This is exactly how it has worked for years in IT. Where have you been?

LOL.. You are taking the piss now.

At least we've found a fairly comprehensive guide to spotting a clueless permatractor.

[KinooOrKinog]

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.

Not true. When I first started contracting I used an umbrella for my first two roles before I set up my LTD. That was just a personal choice & I wasn't getting the message from agents or clients that it was essential.

[mockedguy]

That's completely wrong. We've had plenty on here and we've guides how to do it for newbies. The whole draw of contracting is to do it via LTD. You are going from the sublime to the ridiculous now.

This is exactly how it has worked for years in IT. Before an agent even puts you up for a role they want to know you have a ltd cpy. Have had that conversation 100s of times. Where have you been? Or are you not in IT?

[northernladuk]

Mods. Can we cut this thread from where mockedguy stepped in and move it to General please?

[northernladuk]

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.

That's completely wrong. We've had plenty on here and we've guides how to do it for newbies. The whole draw of contracting is to do it via LTD. You are going from the sublime to the ridiculous now.