Reply to: Will it be END of contracting after IR35 to private sector ??

[cojak]

Having just watched a webinar on this, one thing I hadn't really considered before (sorry if everyone else had and I'm slow on the uptake) is that the majority of this impact may be at the lower end of the contracting world (where most here wouldn't even call them contractors). By this I mean those around minimum wage, where they are arguably being exploited by the end client.

I’m afraid that we already have...

Forced into Contracting? Read this

I was trying to decide how to show an example of a pay packet that you may be considering.

Since all types of people are moving into contracting, I decided to go for the lowest - the Living Wage.

The Living Wage as of 23/08/18 is £7.83 per hour.

For an 8 hour day this comes to £62.64 per day.

However, you have tax, Employee's and Employer's NI, The Umbrella's commission and a few other things to pay out, so we have to see what you will need in order to get to that figure in your bank account.

But there are 'nice' round figures in the calcs, so I moved it up by less than a tenner and we are looking at £71.65 pd.

To get £71.65 in your bank account you will need to charge the client £100 per day (£500 pounds per week).

Or £358.26 per week (£71.65 x 5) in your bank account.

Use £500 pw in the calculator above to get the breakdown of costs.

But remember one thing. That £100 per day will not cover the time you go on holiday or fall sick. You will need to put some of your day rate to one side to cover those things (we call those savings our warchest).

If you manage your finances carefully and put some money to one side you will be able to make this work, but you can see that this would be difficult to do on £100pd.

[NotAllThere]

How do you see this progressing, will PERM jobs be the only option then as contracting (without any financial benefits of contracting) wouldnt make much sense.

I've always found that my rate is high enough that even with IR35, it's still way better than permie.

[ShandyDrinker]

My guess is, if it can of course be considered legal, that agencies and clients will attempt to put clauses into contracts which somehow state that the contractor is unable to take them to an ET either during the contract or once it has finished. I don't know how the legal system would actually view this but while I think it's fantastic the cases that have been brought so far, I think that HMRC and the Government are playing a numbers game here in that even if say 70% are deemed inside who would have once been considered outside then even if there are a few court cases or tribunals, it makes more sense for HMRC to advise people to settle rather than a test case being brought for the good of the industry.

[JohntheBike]

Optimistic?

I fear you are wildly optimistic on both counts. Of course, wait for the legislation, but this isn't about the contractual relationship, it's about tax law (ITEPA); the whole point of IR35 is to look through all the intermediaries in the chain and establish whether the *hypothetical* contract looks like one of employment. They will be looking at the end client w/r to size criteria.

well, let's see what the courts make of it.

"it's about tax law"

which is why I contend there will be many more ET cases raised, where tax law will not be considered. We've already had two recent cases, where HMRC effectively lost.

[jamesbrown]

" if the client meets the criteria"

if the contract is with the agency, then the agency is the client, as they are required to make the deductions. There is no contractual nexus between the contractor and the client under this structure. However, it's a moot point.

"Anyway, small clients will most likely be in scope too from, say, April 2021 or 2022"

possibly, but a lot of water will go under the bridge before then

I fear you are wildly optimistic on both counts. Of course, wait for the legislation, but this isn't about the contractual relationship, it's about tax law (ITEPA); the whole point of IR35 is to look through all the intermediaries in the chain and establish whether the *hypothetical* contract looks like one of employment. They will be looking at the end client w/r to size criteria.

[JohntheBike]

"small" organisations

My understanding is jamesbrown is right on this. Big corporates can't get around the rules by using a dozen individually small agencies.

Having just watched a webinar on this, one thing I hadn't really considered before (sorry if everyone else had and I'm slow on the uptake) is that the majority of this impact may be at the lower end of the contracting world (where most here wouldn't even call them contractors). By this I mean those around minimum wage, where they are arguably being exploited by the end client. Why pay NMW and employer's NICs, plus giving them all the legal rights that come along with it, when you can convince them to accept £5/hour as an independent contractor. So perhaps the tax gain for HMRC isn't really IR35 related on the higher earners, but getting modest amounts of PAYE/NICs from companies using very low earners.

"Big corporates can't get around the rules by using a dozen individually small agencies"

I guess this will be tested in court at some point. If the contractor engages directly with the big corporate client, then yes, but f they engage through an agency, we will have to wait and see. Remember, IR35 itself is not changing, just the rules as to who makes the determination is.

I can see some contractors challenging an inside determination in the ET when their contracts have finished. HMRC wouldn't be able to interfere then, just as they weren't able to in the two recent cases where contractors won.

[eek]

My understanding is jamesbrown is right on this. Big corporates can't get around the rules by using a dozen individually small agencies.

Having just watched a webinar on this, one thing I hadn't really considered before (sorry if everyone else had and I'm slow on the uptake) is that the majority of this impact may be at the lower end of the contracting world (where most here wouldn't even call them contractors). By this I mean those around minimum wage, where they are arguably being exploited by the end client. Why pay NMW and employer's NICs, plus giving them all the legal rights that come along with it, when you can convince them to accept £5/hour as an independent contractor. So perhaps the tax gain for HMRC isn't really IR35 related on the higher earners, but getting modest amounts of PAYE/NICs from companies using very low earners.

I would refer you to the CAB low pay report I commented on and linked to a couple of years back where it included bar maids being told they were self employed in an attempt by the landlord to keep the failing pub open....

So it's not a common viewpoint but I can see why HMRC are using it to justify pushing things through and extending it to small firms later...

[Maslins]

The size of the agency doesn't matter if the client meets the criteria. Anyway, small clients will most likely be in scope too from, say, April 2021 or 2022. They don't want multiple regimes, but it seems they are willing to roll it out in stages.

My understanding is jamesbrown is right on this. Big corporates can't get around the rules by using a dozen individually small agencies.

Having just watched a webinar on this, one thing I hadn't really considered before (sorry if everyone else had and I'm slow on the uptake) is that the majority of this impact may be at the lower end of the contracting world (where most here wouldn't even call them contractors). By this I mean those around minimum wage, where they are arguably being exploited by the end client. Why pay NMW and employer's NICs, plus giving them all the legal rights that come along with it, when you can convince them to accept £5/hour as an independent contractor. So perhaps the tax gain for HMRC isn't really IR35 related on the higher earners, but getting modest amounts of PAYE/NICs from companies using very low earners.

[eek]

Cool. I'm planning on continuing using a brolly and stuffing first 40k earned pre-tax each year into a pension. How do you like them apples HMRC.

Got enough 'war chest' funds to live off while in the 'living wage' only part of the year. May also only work until higher rate tax threshold reached each year, though if the rate is high enough then all comes up roses anyway.

In summary, bring it on.

Technically it's not the first £40K into a pension it's the first £40k after you've been paid the minimum wage for the hours worked. So assuming you earn £40 an hour you would be paid £7.83 and £32.17 can be paid into your pension...

[JohntheBike]

The size of the agency doesn't matter if the client meets the criteria. Anyway, small clients will most likely be in scope too from, say, April 2021 or 2022. They don't want multiple regimes, but it seems they are willing to roll it out in stages.

" if the client meets the criteria"

if the contract is with the agency, then the agency is the client, as they are required to make the deductions. There is no contractual nexus between the contractor and the client under this structure. However, it's a moot point.

"Anyway, small clients will most likely be in scope too from, say, April 2021 or 2022"

possibly, but a lot of water will go under the bridge before then

[jamesbrown]

"are there any other (valid/legal) setups that one could use to continue to reap the tax and other benefits."

given that HMG has indicated that "small" clients will not have to implement the new rules, I'd like to think that agencies might split their businesses up in such a way so as to come under this requirement. Spring, for example, whatever their size, are part of a much larger organisation. If such organisations were to avoid rate hikes to end clients by doing this, I guess market forces might drive such changes.

The size of the agency doesn't matter if the client meets the criteria. Anyway, small clients will most likely be in scope too from, say, April 2021 or 2022. They don't want multiple regimes, but it seems they are willing to roll it out in stages.

[JohntheBike]

Hi Guys
I dont usually post in here but thought may get involved in the community
Once the IR35 is applied to Private sector which seems imminent , will it be the end of contracting?
or are there any other (valid/legal) setups that one could use to continue to reap the tax and other benefits.
How do you see this progressing, will PERM jobs be the only option then as contracting (without any financial benefits of contracting) wouldnt make much sense.

I guess for people those who dont like commitment and like a bit of variety in their work, this may be an option?

Just trying to gather thoughts and understand everyone's next steps really?

Regards

"are there any other (valid/legal) setups that one could use to continue to reap the tax and other benefits."

given that HMG has indicated that "small" clients will not have to implement the new rules, I'd like to think that agencies might split their businesses up in such a way so as to come under this requirement. Spring, for example, whatever their size, are part of a much larger organisation. If such organisations were to avoid rate hikes to end clients by doing this, I guess market forces might drive such changes.

[Hobosapien]

And, there will be a market for inside contracts and outside contracts, and rates will be somewhat higher for the inside contracts because contractors will strongly prefer the outside ones, so clients will have to pay more to fill the inside roles.

The rate differential will be mitigated somewhat by the fact that the outside roles will probably demand a higher level of expertise and professionalism, so that would drive higher rates for that kind of role.

Cool. I'm planning on continuing using a brolly and stuffing first 40k earned pre-tax each year into a pension. How do you like them apples HMRC.

Got enough 'war chest' funds to live off while in the 'living wage' only part of the year. May also only work until higher rate tax threshold reached each year, though if the rate is high enough then all comes up roses anyway.

In summary, bring it on.

[GreenMirror]

No but you only have to look in the HMRC Tax Enquiries thread to see how things will play out for a lot of people as they will listen to the smooth talking salesman and let greed do the rest...

The enquiries forum is just the tip. Closed forums are full of worse.

The issue is the SalesPeople say what they want without sanction from HMRC. And the users do no research. It has been very clear since March 2008 what HMRC are doing.

[saptastic]

And, there will be a market for inside contracts and outside contracts, and rates will be somewhat higher for the inside contracts because contractors will strongly prefer the outside ones, so clients will have to pay more to fill the inside roles.

The rate differential will be mitigated somewhat by the fact that the outside roles will probably demand a higher level of expertise and professionalism, so that would drive higher rates for that kind of role.

Agree with WIB. The legislation will just help to determine rates.