Reply to: Assistance in putting together some information for MP

[SueEllen]

Good points raised so far.

I suggest you mention paying for training.

In this paragraph -

People have stated, well what is the issue, surely morally you should pay the taxes that the amount you earn reflects. But the main issue is that being inside IR35 means you have to pay the Income tax and National insurance of a normal employee, with none of the benefits; I will still have no holiday pay, still no sick pay, no pension contributions, no bonuses, nothing. You are allowed 5% of the company earnings as your expenses, which is woefully inadequate. Most contractors operate businesses, legitimate risk taking businesses and have to supply their own equipment, pay for their own hotels, and the costs associated with being away.

In the sentence highlighted put "no training" instead of "no bonuses". This is because lots of public sector employees get sent on training courses and get encouraged to do qualifications which the department pays for, but not all department's give people bonuses. I also know contractors who have in the past been given a one of extra payment for meeting a legal deadline by a goverment department.

In your final paragraph if you have done any training courses in the last couple of years then mention it and the cost.

[mudskipper]

I think you should remove the 2 year bit completely - it's muddying the issue. Don't dilute a good argument with a weak one.

Also worth emphasising that the business entity tests are not law, nor does being 'low risk' mean you are outside IR35, (or 'high risk' as inside). As such, they are not particularly helpful at indicating IR35 status.

Oh, and you can claim unemployment benefits as a company director - need to make sure it's factually correct or you lose credibility.

[Old Hack]

My view is that any argument based on fairness will fail in the current economic and political climate. We earn a lot of money and will see no sympathy. The key, I believe, if the effect it has on the economy and particularly on the public sector. As OH says, there will be a six month turnover, which will lead to one of:

- Stalled projects due to changing workforce
- Poor quality projects, due to only rubbish contractors accepting the terms
- Expensive projects, due to paying good contractors more to cover increased taxation or (more likely IMO) getting consultancies in at 1 to 2k per day.

So, risks to time, quality and cost.

The problem as I see it (beyond the nonsense of IR35) is that the 6 months and £220 pd are arbitrary and have no relationship to IR35 and therefore to tax obligations.

If my extension goes down the swanny will happily share the details of the project that goes down the swanny - not an IT project where generic skills can be brought in, but extremely niche.

Indeed, I have already been told leaving will cause the project to stall, as they have no skills in house, nor can they find a contractor who has my niche skills.

Projects are going to bomb, because of this.

[speling bee]

My view is that any argument based on fairness will fail in the current economic and political climate. We earn a lot of money and will see no sympathy. The key, I believe, if the effect it has on the economy and particularly on the public sector. As OH says, there will be a six month turnover, which will lead to one of:

- Stalled projects due to changing workforce
- Poor quality projects, due to only rubbish contractors accepting the terms
- Expensive projects, due to paying good contractors more to cover increased taxation or (more likely IMO) getting consultancies in at 1 to 2k per day.

So, risks to time, quality and cost.

The problem as I see it (beyond the nonsense of IR35) is that the 6 months and £220 pd are arbitrary and have no relationship to IR35 and therefore to tax obligations.

If my extension goes down the swanny will happily share the details of the project that goes down the swanny - not an IT project where generic skills can be brought in, but extremely niche.

[Old Hack]

That's good, but I would avoid conflating the two year rule and IR35. While you're right that many contractors view the two years as the end of their contract, the two really aren't linked and to link them as you have will confuse the issue.

Thanks - I have kept it in, but included a line afterwards stating clearly this is not a ruling, merely a metric, amongst others, a contractor would use in determining his status

[malvolio]

That's good, but I would avoid conflating the two year rule and IR35. While you're right that many contractors view the two years as the end of their contract, the two really aren't linked and to link them as you have will confuse the issue.

Yep, agreed. The 24 month rule is actually defensible, it isn't going to change and it would be too easy to abuse it if it were so we simply have to live with it. Stick to IR35 issues.

The key points about the Alexander fisaco is that £220 a day. This is the bottom of the senior civil servant pay scale divided by 260 days a year. That, as ony fule kno, is a complete travesty; the independent worker has a huge overhead compared to an employee to cover the multitude of things that they don't get from their non-existent employer. There is also the regularly repeated assertion that we only pay 20% tax whereas we actually support a marginal tax rate across our gross earnings of around 55%. It is the absolute ignorance of the economic realities that makes both IR35 and the Alexander nonsense so ridiculous.

PCG has some useful stats: 1.6 million small businesses in the UK generating £28bn of GDP a year all by themselves. Tkae a look around their website - Policy home | PCG is a good starting point*. Better still, get your MP to have a look: if nothing else she should perhaps talk to the All Party Parliamentary Group on the Freelance Sector

Finally I recently challenged my local MP (the estimable Mr Rees Mogg) on both the Alexander review and IR35 in general. That letter went to David Gauke whose reply basically rehearsed the same old "we need IR35 to prevent abuse" line. It's about time MPs woke up to the fact that we aren't doing this for tax reasons, we're doing it because (a) it's the best way to manage a variable and inconsisetent income and (b) S44-47 ITEPA 2003 means we have to use an intermediate Limited Company and cannot work as sole traders.

I totally support you attacking your MP on this subject, but don't hold out a lot of hope for a satisfactory result. WE all have to keep chipping away...



* In fact everyone should have a nose around that page, then come back and tell me that PCG is about selling insurance to the unwary.

[captainham]

Very good overall, just a couple of comments:

- when talking about the cons of running your own business (paragraph 4), you should also mention the need for insurance, particularly related to indemnity as unlike an employee you could be sued by the client if you screw something up, plus also liability insurance, legal expenses, jury cover, etc...all things that a permie doesn't need to worry about.

- similar point but accountancy fees/responsibilities also. Ok you don't need an accountant, but it helps as we are not usually accountants ourselves and we are still legally responsible for our companies at the end of the day. I'm sure an MP will appreciate this point...

edit: just noticed you mentioned accountancy fees in last paragraph, sorry.

[RasputinDude]

That's good, but I would avoid conflating the two year rule and IR35. While you're right that many contractors view the two years as the end of their contract, the two really aren't linked and to link them as you have will confuse the issue.

[Old Hack]

Work in progress, and will contain errors, but as a starting gambit, can you comment on this, or corrrect my errors?

I wrote this late last night, so please be gentle on the mistakes - First draught, WIP

Just a few background points. The Off-Payroll arrangements which are at the source of my original conversation with you, are affecting 'everyone' inside a Public Sector role (PSR), when the original issue was masked employees using Ltd companies (and other methods) to minimise their tax obligations. The rules now state, effectively, that anyone working over 6 months inside a PSR, which pays over £220 a day, are deemed to be within IR35, and thus 95% of the Ltd companies earnings are subject to Income Tax and National Insurance from gross amounts received.

Contracts have been rewritten to state that you have to pass HMRC business entity tests and the agency now has the right to put your details forward to HMRC if they believe you have falsely claimed you are outside of IR35, and to terminate the contract immediately. Obviously, you are now passing control over the company, as such, to the agencies, and are signing over the control of the companies income, effectively, to the agencies. This is stating that you have to put all income of your Ltd company via NI and Income Tax (I'll show you how this affects my business in an example at the end).

However, I am led to believe that certain government departments, such as HMRC, are not going to apply the same ruling to their own contractors, as they fear an exodus, which would jeopardise their operations. There's an awful lot of truth in that, as most contractors I know, are already looking at the Private Sector for new contracts. You will also see a lot of turnover of contracts, who will simply move on to new projects every 6 months. This has grave implications for the government, as every 6 months, they would, effectively, have a new team, which would stall any project as the new team got to grips with it. The only other option, is to pay more, which I know some contractors have requested; this way more tax is paid, but is offset by the PSR's paying out more money in the first place; it really is robbing Peter to pay Paul.

People have stated, well what is the issue, surely morally you should pay the taxes that the amount you earn reflects. But the main issue is that being inside IR35 means you have to pay the Income tax and National insurance of a normal employee, with none of the benefits; I will still have no holiday pay, still no sick pay, no pension contributions, no bonuses, nothing. You are allowed 5% of the company earnings as your expenses, which is woefully inadequate. Most contractors operate businesses, legitimate risk taking businesses and have to supply their own equipment, pay for their own hotels, and the costs associated with being away.

IR35 was not a well thought out piece of legislation, in that it is very vague, and no one really would know, 100%, if they operated outside or inside, until they were investigated. However, one of the main rules, were that you cannot claim travel allowance to a place of work if you had been there over 24 months. Most legitimate contractors now look at this as a cut off point between being inside and outside IR35. As I explained to you, an IT project of any length will have many contactors, from many areas of IT, and that they will be there at differing times in the project lifecycle, so in a 3 year IT project, it would be unlikely anyone outside of senior management would be there for the projects duration. Therefore, most legitimate contractors, would not be at any one place for more than 18-24 months. These are the legitimate business people, risk takers that are now caught inside this new guidance.

Most contractors understand, that there are masked employees, operating under schemes designed to minimise their tax liabilities, and understand it clearly isn't acceptable. So yes, rules should be put in place to catch these folk. But we aren't these people, we are legitimate business people, taking risks and spending our time out of contract training, to keep our skills up to date. We cannot claim unemployment benefit out of contract (as we are company directors) and use this time to better equip ourselves for the market place.

I said I would give an example of my business, and how it would suffer.

In my current role, I pay for hotels 4 nights a week, and drive too and from ******* to get to the role. I eat at the hotel and buy my lunches from local shops. My rate is £475 a day. Under the new rules, I would be liable for Tax and NIC's on £451, leaving around £24 to pay for my £95 per night hotel, £20 per day petrol on driving to and from site (averaged) and £25 a day food. Now these are just my day to day expenses. I would be unable to claim for my computers (I need 3 for the work I do), which means I lose a further £4,000. I cannot claim for the software I use, which is a further £5,000 (I work in ******** where software licenses are expensive), nor the accountants, which is another £2,000 a year. I still have to maintain my own records, which accounts for around 50 hours a year (and software costs). Now, these are just my standard costs, which would now all have to come out of my own pocket. So, all in all, I now have the tax liabilities of a normal employee, without any of the benefits, yet still have all my normal business costs, including my day to day operational costs. In my last 4 PSR's, I would be liable to the above. One was in Edinburgh, one Cardiff, one Exeter and one Manchester. I was living in *** at the time, so my operational costs were relatively high (taxis/flights/hotels/food).

[Old Hack]

MP's background?

There is no point explaining to a trade unionist about how small businesses work though they understand about employment rights. There as a former solicitor, who may or may not have been in a small business, would understand about major clients.

Remember she has to explain this to the Treasury i.e. will edit your emails so if she doesn't understand it neither will they.

She used to run small businesses, after a short teaching career.

[SueEllen]

MP's background?

There is no point explaining to a trade unionist about how small businesses work though they understand about employment rights. There as a former solicitor, who may or may not have been in a small business, would understand about major clients.

Remember she has to explain this to the Treasury i.e. will edit your emails so if she doesn't understand it neither will they.

[Old Hack]

Summarise on here what you put in the email you sent her that way people can help you put forward a coherent argument.

Also what is your MPs background i.e. solicitor, accountant, trade unionist - there is no point giving people information if they are unlikely to understand any of it.

Serveral highly publicised bills that have gone through have shown that some MPs (and their researchers) don't have a clue on certain matters due the arguments they have put in public.

Effectively:

1. If you work as a contractor in PS for longer than 6 months, earning more than £220 a day, you are considered inside IR35, even if project led and legitimately outside IR35
2. Contracts have been rewritten, outlining that you have to discuss your scores in HMRC business entity tests and if they fit within a range, have to declare that to the agent, who can report you to HMRC at will, and who can also terminate contract immediately if suspected you are not telling the truth
3. This will cause major projects to fail as contractors seek to leave contracts to not fall into IR35
4. Certain departments are believed to be excused from adhering to the rules
5. Most people this legislation will catch in contracting are legitimate risk taking businesses.
6. We are being taxed as employees, without any of the rights of legitimate employees

and a few other shouty bits I cannot remember

[SueEllen]

She's asked me to put forward examples of how the current public sector guidance is hurting contracting, and allowing more bobs in (my words, not hers).

It is a golden opportunity to put something together, that would go to the treasury. Can anyone help me in this?

Summarise on here what you put in the email you sent her that way people can help you put forward a coherent argument.

Also what is your MPs background i.e. solicitor, accountant, trade unionist - there is no point giving people information if they are unlikely to understand any of it.

Serveral highly publicised bills that have gone through have shown that some MPs (and their researchers) don't have a clue on certain matters due the arguments they have put in public.

[cojak]

That's what has got a lot of people. It seems to miss the point slightly.

I can't seem to get the bloody search bit to work properly, can anyone suggest some links.

I think some real world examples on how this is affecting people would be good too.

Searching CUK forums

[malvolio]

mal would probably have some suggestions.

If this is serious, shouldn't it go in the professional forums?

Yep, but not tonight. Needs a little thought...