Reply to: Labour's approach to contractors

[churchillsnip]

Interesting thoughts. Hoping for a pragmatic view from Labour/the treasury is a little optimistic. The goal of outstripping the g7 on economic growth is the only area that potentially shows some room for hope. I suspect this will be an expansion of R&D tax credits and the like though.

Our sector is on the sharp end of aggregate demand - heresy for permies to get a pay cut, whereas contractors have the flexibility to absorb a lot of changes to economic conditions. Admittedly might be being optimistic to think it might move the needle to any degree.

[woody1]

You'd think HMRC themselves might come up with a pragmatic compromise. It might save them having to constantly chase after endless bloody schemes. https://forums.contractoruk.com/hmrc...e-schemes.html

Sorry, I forgot, neither "pragmatic" or "compromise" are in their lexicon.

[malvolio]

The last point is a salient one.

Clients want a flexible work force without the hassle of providing all those pesky things that employees want, and they'd like to save on their ErNI bill. It also looks good on their statutory accounts if they can state that their employee count is low (as off-payroll temps are not counted).

There is a not insignificant number of people who are happy to work in that manner, as long as they are allowed to enjoy some tax breaks (e.g. allowable expenses) to compensate for the lack of workplace benefits and lack of employment protections.

There are people for whom this is absolutely the wrong model as they risk exploitation.

Sadly, it is the freelancer who cops the flak for their client's business decision and the most recent tweaks to IR35 have made matters worse, not better, by introducing a whole extra level of complexity and administration to try to fix a really badly written law.

There is a solution to be had; I'm just not clever enough to come up with it.

The guts of the solution are already in place. It centres around allowing someone to work through a company they own that has a small number of workers. After all, it works for Virgin, to quote one example, where the top of the group is actually a tiny, if quite wealthy company that neither wants nor needs to grow.

Won't happen though. The first thing we'd need is a 21st Century chancellor with balls (regardless of their actual sex, which would at least please Starmer) to take on Treasury orthodoxy.

[ladymuck]

I don't know if this is still the case but operating a LTD inside IR35 used to come with a 5% break. If only they'd made this a little more generous, then perhaps they could have avoided the last 20 years of shenanigans (schemes, MSCs, dodgy brollies etc).

Even if HMRC/HMT aren't prepared to accept that contractors are self-employed (in business on their own account), there should be some concession to recognise the fact that they don't enjoy the same rights/benefits/security as employees. And that they play an important role in the economy.

The last point is a salient one.

Clients want a flexible work force without the hassle of providing all those pesky things that employees want, and they'd like to save on their ErNI bill. It also looks good on their statutory accounts if they can state that their employee count is low (as off-payroll temps are not counted).

There is a not insignificant number of people who are happy to work in that manner, as long as they are allowed to enjoy some tax breaks (e.g. allowable expenses) to compensate for the lack of workplace benefits and lack of employment protections.

There are people for whom this is absolutely the wrong model as they risk exploitation.

Sadly, it is the freelancer who cops the flak for their client's business decision and the most recent tweaks to IR35 have made matters worse, not better, by introducing a whole extra level of complexity and administration to try to fix a really badly written law.

There is a solution to be had; I'm just not clever enough to come up with it.

[woody1]

I don't know if this is still the case but operating a LTD inside IR35 used to come with a 5% break. If only they'd made this a little more generous, then perhaps they could have avoided the last 20 years of shenanigans (schemes, MSCs, dodgy brollies etc).

Even if HMRC/HMT aren't prepared to accept that contractors are self-employed (in business on their own account), there should be some concession to recognise the fact that they don't enjoy the same rights/benefits/security as employees. And that they play an important role in the economy.

[malvolio]

I suspect, but have no figures to back this up, the net outcome is that IR35 brings in more money than is lost on high profile court cases. There's a lot of people who work via a brolly because they don't want the risk or hassle of fighting their corner if they are selected for investigation.

Exactly this. Both contractors and clients have been scared by HMRC's tactics and misinformation into either forcing umbrella usage or simply banning LtdCo contractors in the first place. All sides are paying more tax as a result, while the source of a lot of taxation has been removed from the market, with both contractors and contractor suppliers losing trade.

There have been attempts to force a bit of logic to the market, but all have been shouted down by contractors themselves. Really, the IR35 Chapter 8 and 10 fights were lost about ten years ago.

[ladymuck]

It costs millions you mean? How many cases have they lost?

I suspect, but have no figures to back this up, the net outcome is that IR35 brings in more money than is lost on high profile court cases. There's a lot of people who work via a brolly because they don't want the risk or hassle of fighting their corner if they are selected for investigation.

[vetran]

Sure, I'm just surprised that we keep seeing the same "I really hope they abolish IR35" comments on here, I simply assumed everyone's aware of where we are in the grand scheme of things (and that IR35 brings in millions, so why would they ever get rid of it?).

It costs millions you mean? How many cases have they lost?

[malvolio]

Sure, I'm just surprised that we keep seeing the same "I really hope they abolish IR35" comments on here, I simply assumed everyone's aware of where we are in the grand scheme of things (and that IR35 brings in millions, so why would they ever get rid of it?).

To be precise, IR35 is bringing millions of pounds of taxes that are not actually owed in the first place. It's likely the actual take would be the same or even better if it was abolished, but then you run into a host of other problems, such as forced incorporation. It was floated by HMT many years ago and Thatcher killed it stone dead, It took the wit and wisdom of a certain Mr Brown to put into (very badly drafted!) law. It will take a very determined chancellor to get it removed; and I don't see too many of them around right now...

[dsc]

It's perfectly logical. The Treasury only recognises employers or employees (the latter subdivided into employees and temporary workers). Employers make thing you can put on a shelf or generate money in finance, employees do the actual work. We, along with a lot of other small businesses and traders, do not fit either category, so we do not figure in any of their plans. As Eek rightly says, we are simply collateral damage in a 19th century view of the economy.

Dawn Primarola said it, very clearly, a long time ago. "Those genuinely in business have nothing to fear from IR35". What she didn't make clear was that if you don't make tractors you cant possibly be in business and hence are simply avoiding paying taxes that are rightfully due as an employee.

Sure, I'm just surprised that we keep seeing the same "I really hope they abolish IR35" comments on here, I simply assumed everyone's aware of where we are in the grand scheme of things (and that IR35 brings in millions, so why would they ever get rid of it?).

[malvolio]

That's why I don't really get people who think HMRC gives two hoots about us and how they really "have to" do something about highly paid consultants not getting jobs, how they didn't give a tulip in covid with support etc. All this talk about "oh maybe they will lower corp tax or get rid of IR35" is pure fantasy talk, I'd be surprised if they leave it as is tbh as I'm sure there's still some wiggle room to make more money.

It's perfectly logical. The Treasury only recognises employers or employees (the latter subdivided into employees and temporary workers). Employers make thing you can put on a shelf or generate money in finance, employees do the actual work. We, along with a lot of other small businesses and traders, do not fit either category, so we do not figure in any of their plans. As Eek rightly says, we are simply collateral damage in a 19th century view of the economy.

Dawn Primarola said it, very clearly, a long time ago. "Those genuinely in business have nothing to fear from IR35". What she didn't make clear was that if you don't make tractors you cant possibly be in business and hence are simply avoiding paying taxes that are rightfully due as an employee.

[dsc]

I know you aren't asking me - but it's important to remember we are always just collateral damage as HMRC try to cut down abuse in other areas....

That's why I don't really get people who think HMRC gives two hoots about us and how they really "have to" do something about highly paid consultants not getting jobs, how they didn't give a tulip in covid with support etc. All this talk about "oh maybe they will lower corp tax or get rid of IR35" is pure fantasy talk, I'd be surprised if they leave it as is tbh as I'm sure there's still some wiggle room to make more money.

[eek]

You really think "working people" means consultants on £800+ per day?

I know you aren't asking me - but it's important to remember we are always just collateral damage as HMRC try to cut down abuse in other areas....

[Unix]

1. Abolish Dividend tax
2. Abolish IR35
3. Reduce Corporation tax to 15%
4. Tax heavily offshoring and limit Visas

Would be nice.

[ladymuck]

Morning,

I'm trying to understand Labour's plans in their 'new deal for working people', and how it would impact our sector. Does anyone have a best guess as to what their plans would be later in the year?

At best, no change.

At worst, more moves to eliminate BOS contracting and force everyone onto zero hours, zero protection, zero benefits PAYE contracts.