Reply to: The great IR35 swindlle

[richy]

If you don't undersand the basic economics, why are you arguing?

I think you've misunderstood my point, I was taking about the tax, the difference is not simply the tax, as that still leaves a lot of extra cash going to the contractor to cover downtime. That gap, permies get paid less due to pension and year long job, etc, etc, etc.

The reason I get more as a contractor is because I need to fund my own: pension, bench time, holidays etc

However, been lucky (or have the right talent) so far, 4 years contracting, only one month gap, which worked out quite nicely, took a long hol

[malvolio]

I'd rather taxation was out of the question, sadly it's not, we're in the IR35 thread, and its divs vs PAYE.

Re Engaging a contractor being lower than a permie, got any figures or links about that? I'm intrigued!

All the contracts I've been on have been paid around double what a perm would get, they don't make that back up in NI or pension contribs.

If you don't undersand the basic economics, why are you arguing?

A contractor doesn't get paid 365 days a year, more like 240. He pays his own Employer's NICs, pension funding, businesss insurances, extended notice periods, training, SSP, death in service benefit, stationery and accountancy fees. He doesn't have to support a management structure and pay rises, nor fixed overheads such as career assessments, HR time and the desk he sits at. Nor does he get paid for non-productive time and nobody has to budget for him being there until age 65 (or even 67).

Cost of employment for a middling worker is around 200% of their salary. Average contract rates are around 50% above equivalent salary. So a £40 permie will cost his employer £80k a year, whereas a the equivalent £350 a day guy will cost £81k if he works every day possible.

[richy]

OK. One small detail. The cost of employment of a contractor is lower than that of a permie. Taxation of the individual is not a factor.

HTH

I'd rather taxation was out of the question, sadly it's not, we're in the IR35 thread, and its divs vs PAYE.

Re Engaging a contractor being lower than a permie, got any figures or links about that? I'm intrigued!

All the contracts I've been on have been paid around double what a perm would get, they don't make that back up in NI or pension contribs.

[richy]

Had you considered the financial risks that contractors have v permies??? It's guaranteed, protected income compared to income from work that has to be sourced by the individual (and not always successfully)

I think the same Contract should be around twice what a perm would get to cover the fact that is not guaranteed.

[LisaContractorUmbrella]

Are you meaning that client co should pay the same total amount for a permie, or an external, and the external gets more take-home simply because of ltd co structure?

I don't think we need taxation differences to be competitive.

Clients pay more for external talent because they need it, and it's usually pretty short-term. They pay more than they would for a permie. That addition money they put in, gives the external more money. It's not a just taxation rate difference than gives the external more money. I'd rather the taxation rates were similar between different trading structures, so it became more about the talent, and what people bring to the team, than how they were incorporated or self-employed, or even VAT registered etc.

The accountants, taxmen, industry advisory groups and solicitors are profiting due to current system

Had you considered the financial risks that contractors have v permies??? It's guaranteed, protected income compared to income from work that has to be sourced by the individual (and not always successfully)

[malvolio]

Are you meaning that client co should pay the same total amount for a permie, or an external, and the external gets more take-home simply because of ltd co structure?

I don't think we need taxation differences to be competitive.

Clients pay more for external talent because they need it, and it's usually pretty short-term. They pay more than they would for a permie. That addition money they put in, gives the external more money. It's not a just taxation rate difference than gives the external more money. I'd rather the taxation rates were similar between different trading structures, so it became more about the talent, and what people bring to the team, than how they were incorporated or self-employed, or even VAT registered etc.

The accountants, taxmen, industry advisory groups and solicitors are profiting due to current system

OK. One small detail. The cost of employment of a contractor is lower than that of a permie. Taxation of the individual is not a factor.

HTH

[richy]

But explain why making us uncompetitive and erasing the margins we get for being freelance and carrying all that extra risk and costs is a good idea. I'm buggered if I can work out your logic.

Are you meaning that client co should pay the same total amount for a permie, or an external, and the external gets more take-home simply because of ltd co structure?

I don't think we need taxation differences to be competitive.

Clients pay more for external talent because they need it, and it's usually pretty short-term. They pay more than they would for a permie. That addition money they put in, gives the external more money. It's not a just taxation rate difference than gives the external more money. I'd rather the taxation rates were similar between different trading structures, so it became more about the talent, and what people bring to the team, than how they were incorporated or self-employed, or even VAT registered etc.

The accountants, taxmen, industry advisory groups and solicitors are profiting due to current system

[malvolio]

Hi



Yup, Sunday Telegraph Biz supplement Page 6 yesterday. Half page, so they've blown 125k of your money! doh.

"A vital role that deserves recognition". As someone who works in this sector, I don't really see where they are coming from. Contracts come up for tender because of the flexibility, ease of getting in talent, and ease of dropping it when projects end.

Don't understand. Your market - and hence your job - exists because of that flexibility. Your point eludes me completely.

I've not seen any benefits of PCG myself. Have I missed something good?

Like I said earlier, the benefits are horribly intangible, but nontheless real. Without PCG's lobbying you would be in a far worse state than we are now, not that that's particularly good.

PCG should switch, and campaign for increasing corp tax so it matches self-employed, then there will be no benefit from ltd co structure. Or bring NI+Income tax down as towards the small ltd co corp tax rate..

I wish I lived in your world, it sounds nice...


But explain why making us uncompetitive and erasing the margins we get for being freelance and carrying all that extra risk and costs is a good idea. I'm buggered if I can work out your logic.

[richy]

Hi

Also, campaign such as taking a few full page ads out to change public (and therefore MP) perception on the value of contractors aint cheap - a full page ad in a heavyweight paper is around 250k.

Yup, Sunday Telegraph Biz supplement Page 6 yesterday. Half page, so they've blown 125k of your money! doh.

"A vital role that deserves recognition". As someone who works in this sector, I don't really see where they are coming from. Contracts come up for tender because of the flexibility, ease of getting in talent, and ease of dropping it when projects end.

All in all PCG is bloody good value -however they could do a lot more if the coat-tail hangers on (the ones that get the intangible benefits for free) would stup up a tenner a month (what's that, what you earn for the first Monday dump of the month?) and join up.

I've not seen any benefits of PCG myself. Have I missed something good?

PCG should switch, and campaign for increasing corp tax so it matches self-employed, then there will be no benefit from ltd co structure. Or bring NI+Income tax down as towards the small ltd co corp tax rate..

[Wanderer]

I wish govt would integrate the rates, so self-employed pretty much matched the small companies corp tax rate. Bump small companies corp tax to 29% for a start.

Do you ever wonder why they don't do this? Do you ever consider that perhaps they would like to encourage small businesses (including freelancers) and therefore keep the taxes low?

[richy]

Hmm.

If you are currently LTD, then you'd pay ~10% more tax to go self employed, even more if you are engaging in a few tax avoidance measures like retaining funds in the company for a rainy day or income splitting. For the incorporated worker, they would leave themselves open to unlimited liability as self employed too. Big win for HMRC - 10% more tax coming in but I can't see it catching on.

I don't see that adding up to 99% of contractors, somehow. The hassle of running a company can be easily mitigated by hiring an accountant to do it all for you.

If you are currently umbrella then you would pay ~13% less tax (no employer's NI) if you went self employed. Big loss to HMRC. A fair number of self employed people wouldn't pay tax at all, work for a year or two and then leave the country while others would under declare their earnings and have no money when HMRC eventually caught up with them. Big enforcement headache and more loss for HMRC.

I wish govt would integrate the rates, so self-employed pretty much matched the small companies corp tax rate. Bump small companies corp tax to 29% for a start.

[richy]

Exactly why do you think people join the PCG?
When my membership lapsed they phoned and focused strongly on how I was not insured against IR35 any more.
And they push the point on their site, you MUST avoid gaps in your membership to be covered. They are CLEARLY using IR35 advice/protection as a strong aspect of their value to contractors.

That raises two questions:

1) If this IR35 risk even exists. For most of us it doesn't

2) Is making people fearful to get renewals a good thing.

[malvolio]

Exactly why do you think people join the PCG?
When my membership lapsed they phoned and focused strongly on how I was not insured against IR35 any more.
And they push the point on their site, you MUST avoid gaps in your membership to be covered. They are CLEARLY using IR35 advice/protection as a strong aspect of their value to contractors.

Well it's worth following up, which I will do, but I think the message is "are you sure you want to give up your protection from HMRC?". Obviously the more PCG members the better, but it's not about getting income since PCG is self-suppropting as it stands and has been for a while.

So I'm not sure exactly what it is you're worried about: they're simply making sure you've gone from being protected to not being protected and there are good reasons for doing so.

[d000hg]

PCG haven't raked in anything. Which bit of "not for profit" don't you understand? They have mdoest reserves for fighting another Arctic, but the bulk of their income is from membership fees and they haven't changed for years.

Exactly why do you think people join the PCG?
When my membership lapsed they phoned and focused strongly on how I was not insured against IR35 any more.
And they push the point on their site, you MUST avoid gaps in your membership to be covered. They are CLEARLY using IR35 advice/protection as a strong aspect of their value to contractors.

[malvolio]

Every member costs a premium from the underwriters. The BoD are elected members and get a stipend of 17k, much of which is spent on the cost of being on the BoD. There is a modest staff, but they really could do with more staff, given the long list of things that need sorted out that they cannot allocate resources to - I'm talking about client/agency education and that sort of thing that would make our life much much easier.

Also, campaign such as taking a few full page ads out to change public (and therefore MP) perception on the value of contractors aint cheap - a full page ad in a heavyweight paper is around 250k.

PCG has NO SHAREHOLDERS, so there are NO DIVVYS taken out to make anyone rich. Everything spent is staff wages or cash spent to make freelancing a nicer place to be. For everyone.

All in all PCG is bloody good value -however they could do a lot more if the coat-tail hangers on (the ones that get the intangible benefits for free) would stup up a tenner a month (what's that, what you earn for the first Monday dump of the month?) and join up.

There's also a weird bit of accounting logic in there that means PCG have to report their membership contributions as a debt, since theoretically they may have to give it all back at some point. It's not going to happen, but if it isn't presented that way in the accounts, then the auridtors won't pass them. Which is not an option, they're not the EU

So OK, so as a result there's a couple of million in there that can't be spent. then again, how much do you suppose another Arctic would cost? Bearing in mind last I heard they still hadn't got all the costs back...

And speaking for myself, after 7 years on the CC, I've made precisely zero from the PCG ; if anything I've spent my money on their behalf.

Fnially, WV8S - every contractor has benefitted from what the PCG has acheived, it would be good if some of them could put something back. What you get for £220 Plus membership makes that decision a total no-brainer.