Reply to: Fixed price project work from April 2020?

[WordIsBond]

Come up with a way that ERNI can be implemented on the contracting industry without increasing the tax rates for of your typical self employed plumber.

If you can do that, you will solve the problem that HMRC have spent the last x years trying to resolve without any success.

Pretty simple, actually. The dividend tax already solved half the problem. Div tax + CT is roughly equivalent to EENI + IT. Bump it up by another 7.5% for close companies, and you've basically solved it. Might hit pensioners with family businesses in some cases, increase the dividend allowance for pensioners to £7.5K. Tweak as needed.

Doesn't solve the income splitting issue, but that's relatively minor by comparison. It could be solved but won't because of ideology.

This was discussed at some length here: https://www.contractoruk.com/forums/...then-what.html.

[eek]

Of course. If you don't mind, let me repeat this again, though. IR35 is stupid legislation. It's a stupid way to try to fix their problem.

There are significant imbalances to the way different kinds of income are taxed in this country, and as long as those imbalances exist you will have people finding ways to shift income from high-tax income to low-tax income, and you will come up with ever more convoluted ways to restrict that.

The changes to dividend taxation a few years ago basically bridged the gap on employee NI. Now, it is only ERNI. There are other ways to bridge the gap on that.

The other thing that IR35 "protects against" is income splitting. But that's a smaller problem. That also is a problem due to taxation imbalances -- one-earner households are taxed much more heavily (proportionally) than two-earner households. That's driven by ideology, not by economic sense. Remove that imbalance and you'd end the whole income-splitting issue.

Come up with a way that ERNI can be implemented on the contracting industry without increasing the tax rates for of your typical self employed plumber.

If you can do that, you will solve the problem that HMRC have spent the last x years trying to resolve without any success.

[WordIsBond]

If you don't mind. let me repeat this again:-

Employers NI is worth £70bn+ to HMRC.

HMRC are petrified that the gig economy will destroy that NI.

IR35 is literally the only thing HMRC has (and the first thing they must strength) to avoid that £70bn rapidly eroding away.

Of course. If you don't mind, let me repeat this again, though. IR35 is stupid legislation. It's a stupid way to try to fix their problem.

There are significant imbalances to the way different kinds of income are taxed in this country, and as long as those imbalances exist you will have people finding ways to shift income from high-tax income to low-tax income, and you will come up with ever more convoluted ways to restrict that.

The changes to dividend taxation a few years ago basically bridged the gap on employee NI. Now, it is only ERNI. There are other ways to bridge the gap on that.

The other thing that IR35 "protects against" is income splitting. But that's a smaller problem. That also is a problem due to taxation imbalances -- one-earner households are taxed much more heavily (proportionally) than two-earner households. That's driven by ideology, not by economic sense. Remove that imbalance and you'd end the whole income-splitting issue.

[eek]

Good client relationships go a long way. IR35 discourages this by making long term relationships and flexibility a black mark against you. What's good for building a business and relationships is bad for IR35, one of the many reasons it is an exceptionally stupid law.

If you don't mind. let me repeat this again:-

Employers NI is worth £70bn+ to HMRC.

HMRC are petrified that the gig economy will destroy that NI.

IR35 is literally the only thing HMRC has (and the first thing they must strength) to avoid that £70bn rapidly eroding away.

[WordIsBond]

Good client relationships go a long way. IR35 discourages this by making long term relationships and flexibility a black mark against you. What's good for building a business and relationships is bad for IR35, one of the many reasons it is an exceptionally stupid law.

[Jolie]

Sounds like you've got a good situation and I hope it continues to work well for you!

I've got the first two, so just need to get them on board, which I'm sure they'll agree is easier than finding someone new.

Thank you, yes I hope it works out for you too. But whatever happens it's worth remembering that any situation can change very quickly, so I am keeping my feet on the ground and making sure I have a backup plan ready, should anything go wrong.

[quantum77]

It sounds really easy doesn't it? Get rid of your contractor and just pick up one of many who are benched, because it's easier and cheaper?

No, that's not what happens in EVERY situation. My client approached me and asked ME to change to a fixed price situation, partly forced by the requirement of the hedge fund to ditch all contractors due to IR35 and partly for my desire to move abroad, which I had been planning for a few years now.

Not all contracts are something that can be easily filled by a benched contractor. In my case it took 6-12 months just to get up to speed on the ground, before I even started tackling the project. That's not something that some clients are willing to go through again, so it's easier to work with who they have and ensure a situation that suits everyone. In my case I will be on fixed priced contracts and I will be out of the country when I service them.

Sounds like you've got a good situation and I hope it continues to work well for you!

So the answer to the OP is yes, it's possible, but only if you have a good relationship with the client, have a niche that puts you above the rest and they are on-board with the idea.

I've got the first two, so just need to get them on board, which I'm sure they'll agree is easier than finding someone new.

[Jolie]

Indeed they will just hire from the 1000’s of benched contractors willing to bend over

It sounds really easy doesn't it? Get rid of your contractor and just pick up one of many who are benched, because it's easier and cheaper?

No, that's not what happens in EVERY situation. My client approached me and asked ME to change to a fixed price situation, partly forced by the requirement of the hedge fund to ditch all contractors due to IR35 and partly for my desire to move abroad, which I had been planning for a few years now.

Not all contracts are something that can be easily filled by a benched contractor. In my case it took 6-12 months just to get up to speed on the ground, before I even started tackling the project. That's not something that some clients are willing to go through again, so it's easier to work with who they have and ensure a situation that suits everyone. In my case I will be on fixed priced contracts and I will be out of the country when I service them.

So the answer to the OP is yes, it's possible, but only if you have a good relationship with the client, have a niche that puts you above the rest and they are on-board with the idea.

[GhostofTarbera]

YOU could.

But you will still need the buy in of the client. And that ain't likely to happen, Just-Like-That.

Indeed they will just hire from the 1000’s of benched contractors willing to bend over


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[simes]

In the past I've always charges a daily rate to clients. Post April 2020 could I package up work and charge a per project price to get around IR35?

YOU could.

But you will still need the buy in of the client. And that ain't likely to happen, Just-Like-That.

[jamesbrown]

Yes, the announcement of the review effectively confirmed it as going ahead.

[quantum77]

Thanks for all of the great input!

I've worked with this client in the past so I'm fairly comfortable in estimating/bidding at a fixed price with them. As others have said I may bid under/over and one side will "win", but I'll take that over jumping into a permie role elsewhere. At least until the April 2020 dust settles...

I assume I should negotiate this asap as it's extremely unlikely the March budget will delay the apocalypse?

[jamesbrown]

I'd not entirely agree. When I left my permie job I had a contract with my old employer that I operated inside IR35, but also did several fixed price jobs for them specifically to get those projects clearly outside IR35.

I partly say that for others reading (such as the OP) who might be thinking that it's a quick fix when it isn't. Perhaps there are exceptions where it starts a legitimate conversation with the client about an unambiguously B2B contract, but many clients want T&M because they aren't willing to concede the level of control over when/where/how or put in the groundwork for estimating what. The likelihood is that both parties wants BoS work and persist their T&M mindset even if the contract says differently, i.e. the contract and working practices are not aligned because, for example, the client wouldn't really accept the deliverables being finished in half the time and the contractor wouldn't really accept spending twice the time they estimated. Also, in that situation, it's a complete sham and of no value w/r to IR35.

[WordIsBond]

Where it's absolutely guaranteed to fail, I think, is when both parties are looking for a workaround to IR35.

I'd not entirely agree. When I left my permie job I had a contract with my old employer that I operated inside IR35, but also did several fixed price jobs for them specifically to get those projects clearly outside IR35.

Worked well for both of us. They knew exactly what to budget for those jobs. There was a risk but because I was bidding on a series of small projects, it mitigated the risk that I'd mess up one of them. I did underbid, I only came out about 10% ahead on those projects compared to T&M. Tried to bid it at a 25% premium to give myself cover. Still, extra profit, even if only 10%.

[jamesbrown]

Absolutely agree.

It's an approach I wouldn't have taken if it wasn't for the fact the person leading the project was an ex-colleague from a previous client who I trusted. They had a very clear idea of what they wanted me to do and what was a reasonable delivery time frame. If it had been an unknown client, I would have been more wary.

Now I've done it, I am more willing to work that way again as it was an excellent learning experience.

Yeah, it's great when it's properly thought through and it's built on some experience and trust. I do it when I can, but I've had a couple of disasters and few situations where I've massively over-estimated and come out ahead. One way to mitigate the risk is to break it into two stages, scoping and delivery. The scoping stage could be T&M or fixed price.

Where it's absolutely guaranteed to fail, I think, is when both parties are looking for a workaround to IR35.