Risk premium?

[webberg]

The OP is seeking information and views.

The OP has never been a contractor but has had (tax) dealings with many but from a while ago.

Consequently the OP, whilst comfortable in the tax technical aspects of schemes up to now, is seeking to understand what contractors might be thinking once the avalanche of rules on T&S, dividends, and IR35 changes (2016 or 2017) is in place.

The OP's observation on the contractors using this site is that many are anxious not to repeat history and find themselves in jeopardy from tax bills from long ago. Equally they are attracted/committed to the contracting world for many reasons, one of which and for some the main reason, is the ability to retain a greater proportion of their earnings.

The OP therefore is interested in future behaviours as much as past behaviours as eventually we will see a range of ideas being proposed which will offer a "solution" to the increased tax that HMG is determined to extract by fair means or foul. The OP's genuine concern is that HMRC will be less inclined in the future to offer settlement for such solutions (if they cross some imaginary line) and as such the reasons why contractors enter schemes becomes exponentially more important.

The OP is not in the business of and has no intention of offering such solutions. The OP did make a suggestion which was based on something seen very recently and that was comprehensively shot down but from which valuable lessons were learnt. The OP has not gone back to the source of that idea with an analysis (having not been invited to do so).

So you are partly correct in that my understanding is lacking. I understand where the ideas driving the tax rules have come from and how similar rules have operated in other areas of tax. I understand how HMRC has sought to apply those rules. I lack an appreciation of how the contractor world has evolved and will evolve. Is seeking to increase that understanding a problem?

Random? Not quite. Speculation based on snippets of information and comments made, yes.

So partly correct, partly not.

Obviously happy to continue here or via PM or via email if you wish.

[psychocandy]

Who mentioned increased risk of IR35 past Apr 16?

And it will be number 1 in a vast majority of cases. Our taxation issues are non of the clients business.

Deffo Option 1. As NLUK says, clients may already think of us as overpaid. They won't give a monkeys bumhole about the extra tax we have to pay.

Try telling a client that you now have to pay tax on travel costs (like permies do) and now have to pay more tax but still dont pay NI (like permies do) and you're not going to get much sympathy.

I get on well with my client and have already had an "off the record" chat about this to warn them of impending storm clouds. This is much the reaction I got.

Yes eventually, when availability and quality of contractors starts to drop off they will realise it affects them as well but that will take a LONG time. I think there will always be a demand for contractors - clients want this. But I just dont think its suddenly going to hike the rates up.

Best I'm hoping for (Assuming still at same client) is smallish rate increase (maybe 5%) and possibly some leeway to negotiate a bit of WFH (Wont save me much money since I get train season ticket - but will save me hassle even one day per week).

No way in a million years are they going to stump up in excess of 10% extra to cover any losses on dividend tax/expenses.

Option 2. Yes if you moan client may present this as a solution in their eyes. And then be confused when you say thanks but no thanks to their offer of £40K perm.

My client has hinted at this recently. I had to kindly explain that, yes its a long day for me to attend site every day, but I do OK out of contracting. But I would not consider a perm role this far away from home because of this.

[LondonManc]

If I'm paying £81 for a return ticket Manchester - London, then I'm not losing £81 if T&S comes in. However, accepting it could simply be the thin end of a very long wedge to divide different parts of the contract labour force.

[psychocandy]

If I'm paying £81 for a return ticket Manchester - London, then I'm not losing £81 if T&S comes in. However, accepting it could simply be the thin end of a very long wedge to divide different parts of the contract labour force.

But, its a minimum of 20% of £81 so £16 or so every day. 20 days per month £320 a month.

PLUS its possibly pushed you £81 more into the 40% bracket. This is the killer.
Depending on circumstances, this £1600 a month, £19K or so a year is now payable as a dividend. Which could be ALL at 40% (cant work it out its too hard for me). A lot more than the original £320 a month worse off then.

[LondonManc]

But, its a minimum of 20% of £81 so £16 or so every day. 20 days per month £320 a month.

PLUS its possibly pushed you £81 more into the 40% bracket. This is the killer.
Depending on circumstances, this £1600 a month, £19K or so a year is now payable as a dividend. Which could be ALL at 40% (cant work it out its too hard for me). A lot more than the original £320 a month worse off then.

Erm, I make the journey once a week.

[psychocandy]

Erm, I make the journey once a week.

Ah so not mega commuter then?

Yes but hotel in the week I presume?

[pjt]

Ah so not mega commuter then?

Yes but hotel in the week I presume?

Am I wrong in thinking the hotel would have the tax relief??

[TheFaQQer]

Am I wrong in thinking the hotel would have the tax relief??

If the T&S changes are implemented as planned, and there is supervision, direction or control, then you would not be able to claim tax relief on the hotel.

[WordIsBond]

If the new world of 2016 is as bad as painted with taxed T&S and perhaps an increased risk of IR 35 applying, is the simple "remedy" of charging a higher daily rate going to be met with

1. No

2. Become an employee

3. Use a Ltd and take the risk

4. Something else

Most engagers would prefer not to have employees for a lot of the tasks contractors do. So #2 won't be all that widespread, but a lot of hidden employees may go that way.

Some contractors will sit on the bench, for a while, if they can't get increased rates to cover the hit. Any UK client that wants my services will pay more because I am pretty sure I can keep busy with foreign clients. There will be enough who demand more pay or opt for foreign work or just drop out because it isn't worth it any longer, that there will be a supply shortage, unless rates increase to at least mitigate the damage. And when there is a supply shortage, rates will increase.

Since some contractors, maybe quite a few, will just take the tax hit in stride, the supply/demand dynamic won't be enough to push rates up to cover the complete tax hit. But rates definitely will increase until an equilibrium is reached. That's how economics works.

[GB9]

It's worth noting that the client may end up having a direct bearing on our tax situation by deciding whether or not the role is subject to SDC. If they say it is then by default they are pushing us into a higher tax bracket.

Edit: hence the client saying that our tax affairs aren't their business isn't totally correct.

Personally I will go for a higher rate for SDC contracts, and if possible, avoid SDC contracts altogether. If the situation is so bad that this is unavoidable then highest net bidder wins. And there would be very little likelihood of me working away from home unless desperate. Just wouldn't be worth it anymore.