Will contracting go out with a bang or a whimper?

[meridian]

I asked one chap I contract with about what he would do if (once) T&S came in, and his response was "I'll just carry on claiming and wait until they maybe investigate me". Which is a big risk - it's the easiest thing in the world for HMRC to filter their search results on small companies with large enough travel expenses to make an investigation worthwhile - but one that I expect a lot of people will be taking.

My own T&S isn't a lot, but I'm easily a higher rate taxpayer so the dividends will hurt a bit. At the end of the day, though, I was recently offered a permie role with a "fantastic rate at a blue chip client" that was a third of my annual turnover, so I'll be sucking it up, maybe indulging in a bit more aggressive tax planning to minimise the hit.

[Pherlopolus]

Having recently changed from Perm to Contract (for 2nd time) primarily due to way of working (money a happy side effect) I am going to ride it out and see how things settle. My contract rate is about 2.5x what I was getting as a permie, so even converting to 100% paye I will be better off than a year ago.

Realistically I want to be thinking about plan B in 10 years and maybe just part time.

[LisaContractorUmbrella]

I may be being overly optimistic (or deranged depending on your point of view) but I think the original proposal will be moderated in some way to effect a clear division between 'proper' contractors and temps who've been turned into contractors because their employers wanted to save money. HMRC's (and presumably HMG's) whole beef has been that far more people than they originally intended have received tax relief on T&S - if that's true then that's should be the problem that's addressed. From the 700+ responses we received from the survey we ran, it's clear that the reality of the situation is not HMRC's perception - now that they have genuine accounts of life as a contractor (assuming they read them), my hope is that they will have a rethink. If they don't then I think that there will ultimately be quite a big backlash from business - not immediately but certainly within a few months

[pjt]

Having recently changed from Perm to Contract (for 2nd time) primarily due to way of working (money a happy side effect) I am going to ride it out and see how things settle. My contract rate is about 2.5x what I was getting as a permie, so even converting to 100% paye I will be better off than a year ago.

Realistically I want to be thinking about plan B in 10 years and maybe just part time.

Pherlopolus I'm somewhat in the same shoes as you. The dividend tax and even IR35 inclusion painful as it may seem would not push me out of contracting. My take home would be reduced by a painful amount but I'd still earn more than I ever could permie.

For me though the T&S could tip me over the edge. Currently my contracts take me all over and loosing tax relief on this along with the other changes would force me to rethink working away. So either I suddenly find loads of local work (which to be honest would be fantastic) or I can persuade my clients to up my rate (not likely) or its game over for me. I doubt I could face going back permie though so plan B would need to ramp up significantly for me to avoid that.

[DaveyDavesson]

I thought this would not apply to LTDs / directors outside of IR35?

"Limited company contractors who are contracting outside of IR35 will not be affected by the government’s proposed changes to travel and subsistence expenses. However, contractors who work as directors of their own Limited company and are classed as inside IR35 will also find that they will not be able to claim tax relief on their travel and subsistence costs in the same way as they used to."

[cojak]

I thought this would not apply to LTDs / directors outside of IR35?

"Limited company contractors who are contracting outside of IR35 will not be affected by the government’s proposed changes to travel and subsistence expenses. However, contractors who work as directors of their own Limited company and are classed as inside IR35 will also find that they will not be able to claim tax relief on their travel and subsistence costs in the same way as they used to."

You've missed at bit. They are talking about changing the rules of IR35 to make sure that everyone is inside IR35. And if you're inside IR35...

[DaveyDavesson]

You've missed at bit. They are talking about changing the rules of IR35 to make sure that everyone is inside IR35. And if you're inside IR35...

Agreed... but when IR35 first came in there were similar discussions. The accountants that consult to HMRC will be back at their day jobs after the changes are complete advising clients on how to stay legal and outside IR35 surely

[northernladuk]

Agreed... but when IR35 first came in there were similar discussions. The accountants that consult to HMRC will be back at their day jobs after the changes are complete advising clients on how to stay legal and outside IR35 surely

Not quite. Back in the day it came in with the rules that were in place so there were options to be outside so it was inconvenient rather than a catchall.

[pjt]

Agreed... but when IR35 first came in there were similar discussions. The accountants that consult to HMRC will be back at their day jobs after the changes are complete advising clients on how to stay legal and outside IR35 surely

Davey I do hope your right but the current proposals look fairly solid and would be difficult to navigate out of.

[Pherlopolus]

Pherlopolus I'm somewhat in the same shoes as you. The dividend tax and even IR35 inclusion painful as it may seem would not push me out of contracting. My take home would be reduced by a painful amount but I'd still earn more than I ever could permie.

For me though the T&S could tip me over the edge. Currently my contracts take me all over and loosing tax relief on this along with the other changes would force me to rethink working away. So either I suddenly find loads of local work (which to be honest would be fantastic) or I can persuade my clients to up my rate (not likely) or its game over for me. I doubt I could face going back permie though so plan B would need to ramp up significantly for me to avoid that.

My T + S is between 600 and 1500 a month, I wfh and spend between 0 and 4 days a week in the city (under my own control, depending on meetings I set up) so my Tax exposure is about 600 a month at worst, bad but not crippling, the dividends tax is about another couple of hundred a month. My big worry is the IR35 issues.