Reply to: Tax situation after April 2020

[JohntheBike]

Not in my experience.
Clients want short term specialist skills to deliver a project.
- one that's too difficult
- one they can't resource as they're busy
- one that has skills they don't need for BAU
- one that is so controversial they want externals to blame afterwards

Then again, I do project work only.
If you're a bum on seat BAU engineer, programmer, analyst, etc then you'll only ever find clients who want what you describe.

"BAU engineer, programmer, analyst, etc "

exactly, and there are many of us who are required to work this way through Ltd companies, as required by the clients, not us. I've never been out of contract in over 20 years of contracting, so there is clearly a demand for such services.

I've never been involved in project work as such, since contracting. Even in my permie days, when I did develop applications, the staffing structures were such that those who developed the applications also supported them.

It seems the norm these days for those two functions to be separated, to such an extent that if the application needs any changes or fixes, these are not done and workarounds are found as the support staff don't have the skills to develop those changes or fixes. But this is only my experience with dealing with offshore support teams.

[Lance]

In my many years of contracting, I've never met anyone who effectively ran a business as you say, they were all effectively disguised employees.

Not in my experience.
Clients want short term specialist skills to deliver a project.
- one that's too difficult
- one they can't resource as they're busy
- one that has skills they don't need for BAU
- one that is so controversial they want externals to blame afterwards

Then again, I do project work only.
If you're a bum on seat BAU engineer, programmer, analyst, etc then you'll only ever find clients who want what you describe.

[JohntheBike]

due for a renewal? or your contract ends?

Sounds like the sort of situation that IR35, and the subsequent legislation, is trying to resolve. i.e. permietracting, instead of running a business.

Well, whatever the situation is, it's the clients who have created it, not the contractors. Clients have always wanted employees in effect, but without the incumbent costs. In my many years of contracting, I've never met anyone who effectively ran a business as you say, they were all effectively disguised employees. So I guess the new IR35 rules are going to affect an awful lot of people. I can also see that some organisations which sprang up on the back of IR35, without really acknowledging the reality of the situation, will wither on the vine when the new rules come into affect, as many will have no need to be members of, or require the services of, such organisations any longer.

[Lance]

Thanks for this. I guess many of us will have to wait and see exactly how things pan out. I'm due for a renewal at the end of June, which should take me to the end of the year, which is MyCo's financial year end. So I guess I'll have to try and establish what the client's intentions will be before the end of the year, that is if I do get a renewal and then if I'm offered one into next year. As I've said earlier, I can retire, so I'll only continue if the terms are attractive enough.

due for a renewal? or your contract ends?

Sounds like the sort of situation that IR35, and the subsequent legislation, is trying to resolve. i.e. permietracting, instead of running a business.

[Hobosapien]

Yep, simplest approach is to continue under current terms until an extension offer comes along that takes you into and beyond April 2020.

In the meantime keep abreast of any news and developments so you can discuss the situation with the client if they look like they'll be wanting you beyond next March, so you can tell them why you won't be renewing unless terms are re-negotiated appropriately depending on what transpires by then.

Bottom line is clients will still want and need short term flexible resource so it's just the method of engagement and the associated cost that is open for change with whatever the government does to try to mess things up.

[JohntheBike]

For real-life examples of how it works in public sector currently, to assess how it may work if the rules are implemented as is for private sector, then the main relevant aspect I can think of is that many agencies will not want to pay into a Ltd as they need to have taken tax before that point as last supplier in the chain and will not offer you to go on their own payroll without a fee (if at all), and will push for contractors to use a third party payroll service or umbrella to isolate them from current or potential future employee rights/tax issues.

There is no benefit using the Ltd for the inside IR35 scenario only disadvantages.

Some people intending to flit between inside and outside IR35 contracts have kept the Ltd ticking over for the outside contracts and used brolly or payroll service for the inside contracts.

Thanks for this. I guess many of us will have to wait and see exactly how things pan out. I'm due for a renewal at the end of June, which should take me to the end of the year, which is MyCo's financial year end. So I guess I'll have to try and establish what the client's intentions will be before the end of the year, that is if I do get a renewal and then if I'm offered one into next year. As I've said earlier, I can retire, so I'll only continue if the terms are attractive enough.

[Hobosapien]

For real-life examples of how it works in public sector currently, to assess how it may work if the rules are implemented as is for private sector, then the main relevant aspect I can think of is that many agencies will not want to pay into a Ltd as they need to have taken tax before that point as last supplier in the chain and will not offer you to go on their own payroll without a fee (if at all), and will push for contractors to use a third party payroll service or umbrella to isolate them from current or potential future employee rights/tax issues.

There is no benefit using the Ltd for the inside IR35 scenario only disadvantages.

Some people intending to flit between inside and outside IR35 contracts have kept the Ltd ticking over for the outside contracts and used brolly or payroll service for the inside contracts.

[JohntheBike]

Difficult to be informed on something that we don't know will happen and if it does how it will be implemented...

But the nearest example of what might happen is what has already happened in the PS. Happy reading.....

yes, agreed. dare I mention the B word?, a relative of mine has maintained right from the outset that it won't happen!

[northernladuk]

Difficult to be informed on something that we don't know will happen and if it does how it will be implemented...

But the nearest example of what might happen is what has already happened in the PS. Happy reading.....

[JohntheBike]

Great. Thanks

Can we move to General then please?

well, there was a caveat, which depends on my client. If they renew me again at the end of the year, then I'll have to consider my position after April 2020 and clearly I need to be as informed as I possibly can be, before making any decision.

This is why it would be good to know some actual facts rather than depending on opinions, however reasoned and valid they might seem.

[northernladuk]

well, my questions are purely academic really, as unless I have totally misjudged my client's requirements for my services, I'll be retiring at the end of this year.

Great. Thanks

Can we move to General then please?

[JohntheBike]

As I say.. basic misunderstanding. Maslins has already given what will probably happen in the last line of his post.

Also mentioned a number of times in this post which you were a contributor.
https://www.contractoruk.com/forums/...ules-ir35.html

Please read the Reforms to IR35 threads.

well, my questions are purely academic really, as unless I have totally misjudged my client's requirements for my services, I'll be retiring at the end of this year.

[northernladuk]

The problem as I see it is, that those who are deemed inside will still have to run their company, and at a loss, as the contract will be between the contractor's company and the client. So all payments would have to be made into the bank account of the contractor's company. I haven't seen this issue discussed anywhere. So would the situation where a company continued to post a loss determine that the company was insolvent based on the Companies Act? My accountant has advised me that if there are insufficient funds in the company on the first day of the company's new trading year to cover the corporation tax liability for the previous year, then that company is technically insolvent. Is this actually the case?

Has anyone caught by the new rules been able to persuade the client to pay the monies directly into their personal account and not the company account? I can't see it, but it would be good to know.

As I say.. basic misunderstanding. Maslins has already given what will probably happen in the last line of his post.

Also mentioned a number of times in this post which you were a contributor.
https://www.contractoruk.com/forums/...ules-ir35.html

Please read the Reforms to IR35 threads.

[JohntheBike]

If someone contracts inside IR35 (new rules) long term, then my understanding is their company will consistently make a small loss (admin expenses like you suggest). They won't be able to get any tax relief for this. Remember the company and the individual behind it are two separate legal entities. A company's loss can't be offset against an individual's income. Realistically people in this situation will likely look for options other than Ltd Co (umbrella/PAYE).

If they're dipping inside/outside IR35 then it's different. Potentially messy, but at least for the outside stuff the company will be able to make a profit, offsetting any modest losses on the inside stuff. It may well be that those people in this situation (sometimes inside sometimes outside) will do the inside stuff via an umbrella anyway.

The problem as I see it is, that those who are deemed inside will still have to run their company, and at a loss, as the contract will be between the contractor's company and the client. So all payments would have to be made into the bank account of the contractor's company. I haven't seen this issue discussed anywhere. So would the situation where a company continued to post a loss determine that the company was insolvent based on the Companies Act? My accountant has advised me that if there are insufficient funds in the company on the first day of the company's new trading year to cover the corporation tax liability for the previous year, then that company is technically insolvent. Is this actually the case?

Has anyone caught by the new rules been able to persuade the client to pay the monies directly into their personal account and not the company account? I can't see it, but it would be good to know.

[northernladuk]

If someone contracts inside IR35 (new rules) long term, then my understanding is their company will consistently make a small loss (admin expenses like you suggest). They won't be able to get any tax relief for this. Remember the company and the individual behind it are two separate legal entities. A company's loss can't be offset against an individual's income. Realistically people in this situation will likely look for options other than Ltd Co (umbrella/PAYE).

If they're dipping inside/outside IR35 then it's different. Potentially messy, but at least for the outside stuff the company will be able to make a profit, offsetting any modest losses on the inside stuff. It may well be that those people in this situation (sometimes inside sometimes outside) will do the inside stuff via an umbrella anyway.

I think the OP is missing the fundamentals of this just like everyone did when the PS changes hit.