End of IT contracting this June?

[BrilloPad]

Worse security, benefits and risk should be compensated for commercially, not subsidised by the tax system.

Big companies should pay the same CT as small companies. Which would have a far greater impact. A sense of perspective is needed.

[SussexSeagull]

Don't forget that the abandoned NI rise was also aimed at industries where people don't have a lot of choice in being self employed.

For us it is just part of the slow but steady move towards contracting becoming a less and less attractive option. I was chatting to an agent the other day about something I am up for which might end up being a permanent role instead of a contract, which apparently is becoming more and more common.

To be fair as some contractors behave like permanent employees in all but being paid twice the money we really should have seen that coming.

[PerfectStorm]

The first instalment of it was to increase National Insurance for contractors.

That was for self employed people, not contractors per se

[northernladyuk]

Big companies should pay the same CT as small companies.

They do.

[northernladyuk]

Not me. I only get paid 8k a year.

Plus the cash in hand work.

[WordIsBond]

Worse security, benefits and risk should be compensated for commercially, not subsidised by the tax system.

Only if you think there is no broader societal or economic benefit to having a flexible workforce. If having a flexible workforce strengthens the economy, why should not the tax system encourage it? The tax system encourages R&D, green energy, having kids, child care, fuel-efficient cars, pension savings, capital expenditures, etc, etc, etc.

If a flexible workforce is valuable to the economy as a whole, and valuable to society by allowing more people to have the lifestyle benefits of flexible working, why should it be only the engagers that have to pay for it? Why shouldn't society chip in a little bit via the tax system?

[jamesbrown]

Only if you think there is no broader societal or economic benefit to having a flexible workforce. If having a flexible workforce strengthens the economy, why should not the tax system encourage it? The tax system encourages R&D, green energy, having kids, child care, fuel-efficient cars, pension savings, capital expenditures, etc, etc, etc.

If a flexible workforce is valuable to the economy as a whole, and valuable to society by allowing more people to have the lifestyle benefits of flexible working, why should it be only the engagers that have to pay for it? Why shouldn't society chip in a little bit via the tax system?

Right, but I don't think these two views are incompatible. Certainly, we shouldn't be compensated via the tax system for things that are explicitly reflected in rates. However, there may be a reason to encourage particular ways of working via the tax system. The problem is that the current tax system is a birds next of historical precedent, not a carefully articulated reason for preferring one form of working over another. If you listen to the IFS and others, they are arguing that the magnitude of difference is unjustified, not that there should be no difference. There is an alternate case to be made, but I think most could agree that the largely arbitrary and substantial favouring of one form of working over another is not really justified. In principle, I'm with northernladyuk, but there's an argument to be had about the precise value of any tax bonus, so that it has some level of consent. The problem we face is that the average punter (or MP for that matter) doesn't understand these nuances, so there will be more people arguing for zero or very small differences, once inconvenient manifesto commitments are out the way.

[WordIsBond]

You are absolutely right that we shouldn't be compensated via tax for things for which we've already been compensated.

If you listen to the IFS and others, they are arguing that the magnitude of difference is unjustified, not that there should be no difference.

How much difference should there be? I don't know.

Limited companies have regulatory requirements that employees and the self-employed don't have. We either have to pay for an accountant or do unpaid work to carry out those requirements ourselves. Those burdens are imposed by law. It's only equitable that the tax structure compensate us for that. It's not right that our engagers should have to, it's the law that says we have to report in such and such a way.

We also, along with the self-employed, have to do self-assessment, something that many employed people don't have to do. So again, accountancy fees or unpaid work, imposed by law. Tax structure should compensate for that, too.

We have risk. We get compensated for it by the engagers. Fair enough. Employees have security. Employees do not get taxed on their "security" -- but HMRC wants us to be taxed on our "risk compensation." That's not fair or right. Sure, the Treasury should not give us tax benefit to compensate us for the risk, I'd agree. But should they tax us on the compensation we get for taking that risk, when employees aren't taxed accordingly? They should AT LEAST allow us to be taxed on that risk compensation in the year we personally receive it, when we may be on the bench, rather than forcing us to be taxed on it in the year our company earns it, the way IR35 compels us to be taxed.

We have to buy PII. Employees don't. But contractors in the public sector are taxed on the money they use to buy that PII. Should the engager pay enough to compensate them for having to buy PII? Of course. Should they be taxed on that extra compensation? Employees aren't taxed on the PII they don't have to buy, how is it fair for us to be taxed on it?

Even in terms of fairness, given the above and other considerations, there should be some measure of difference in tax treatment. Beyond that, the government should be encouraging the flexible workforce. How much? I don't know.

There is an alternate case to be made, but I think most could agree that the largely arbitrary and substantial favouring of one form of working over another is not really justified.

Yes, if we think it is arbitrary. I don't think it is arbitrary, personally, as I've argued. I think there are substantive reasons for favouring flexible working. But obviously, the point of "consent" is an important one. And I think things have been substantially out of balance, which has undercut consent.

And you are obviously right that the average punter doesn't get it. And the average politician is more interested in playing up to the average punter for votes than in doing what makes sense, even if the politician does have the economic sense to understand the issues. And most of them don't have that sense, anyway. The ones that do either don't care or they are afraid to tell the truth. So we'll continue with the stupidity and the "fairness" arguments.

[jamesbrown]

How much difference should there be? I don't know.

But that's precisely the point I'm making. Implicit in the above statement, I think, is your agreement that the the current difference is arbitrary. Not the need for a difference, but the amount. It is largely the product of historical precedent, not careful planning. My argument isn't that the tax system shouldn't encourage particular ways of working, only that it shouldn't be arbitrary. It needs to be justified by politicians and tested at the ballot box (albeit alongside a million other issues), otherwise there's no consent for it. Was the difference before the recent changes to dividend taxation the appropriate difference? Is the current difference the appropriate difference? Obviously, the maximum level of encouragement is zero tax on qualifying forms of work (your house appreciates in price completely tax free, for example). The ability to defer income seems, to me, an entirely reasonable way in which to encourage flexible forms of working; there's an indisputable connection between cause (being out of work) and effect (paying "too much" tax, when averaged over some period). Anyone who works outside of IR35 can do that, and most do. Aside from the ability to fully offset business expenses, perhaps that's enough. Certainly, there shouldn't be any penalty for choosing a flexible form of working.

In the long-run, the obvious way to do this would be to align NI with income tax, tax all forms of income in the same way (with a direct offset for CT paid), ensure that all business investment is fully offset for tax purposes, and then work out the extent to which a particular form of working should be encouraged. There are many ways in which to achieve the latter, whether using rates, allowances, or the ability to defer income, for example. The IFS et al. are arguing for something like 1% on NI (), because they're only capable of simple calculations that involve totting up the state benefits accrued by different forms of work(er). Most employees would probably expect zero difference, because they haven't thought about this stuff too carefully. Neither see the bigger picture. The bigger picture is a flexible economy; one that attracts inward investment. It needs reasoned argument, and reasonable politicians ().

[WordIsBond]

But that's precisely the point I'm making. Implicit in the above statement, I think, is your agreement that the the current difference is arbitrary. Not the need for a difference, but the amount.

That's correct. It appeared to me you were saying that treating people differently was arbitrary. I'd say it isn't, that it's economically sound. But yes, the current difference is arbitrary. Well, not quite arbitrary in the classic sense of the word, but based more on historical precedent, to use your term, than good sense.

Was the difference before the recent changes to dividend taxation the appropriate difference? Is the current difference the appropriate difference?

I still think it is marginally out of balance, personally. But any difference is going to be somewhat arbitrary, because the "right" amount is determined by how much you think government should be encouraging this behaviour. When you say it shouldn't be arbitrary, you are effectively saying government policy should be neutral, that there shouldn't be tax incentive, there should only be tax compensation for what is quantifiable.

Once you move into the realm of "incentive" or "encouraging" it is always going to have an arbitrary component. How valuable is the thing you are encouraging to society, and how much should you encourage it? Those things are impossible to quantify.

Obviously, the maximum level of encouragement is zero tax on qualifying forms of work (your house appreciates in price completely tax free, for example).

Well, to nitpick, the maximum level is infinite because you can have tax credits to encourage certain things. Home ownership in America is beyond tax free, you actually get to deduct the interest on your mortgage from your income. If HMG decide that the flexible workforce is so important that they want to subsidise it with tax credits, they'll have my vote.

The ability to defer income seems, to me, an entirely reasonable way in which to encourage flexible forms of working; there's an indisputable connection between cause (being out of work) and effect (paying "too much" tax, when averaged over some period). Anyone who works outside of IR35 can do that, and most do. Aside from the ability to fully offset business expenses, perhaps that's enough. Certainly, there shouldn't be any penalty for choosing a flexible form of working.

And that's the real problem with IR35, it actually penalises. If it merely equalised, it would be much more tolerable. I wouldn't be content with saying "perhaps that's enough," because it provides no incentive, and I think that is short-sighted. I'm not a big advocate of government incentivising behaviour, in general, but I do think things that provide real economic benefit (I'll include R&D here, for instance) can and should be incentivised.

In the long-run, the obvious way to do this would be to align NI with income tax....

I pretty much agreed with everything in this paragraph, but it will never happen. Because if the masses ever actually learned that the government takes over 40% of their salary in tax (by the time you include NI contributions), you'd see more outrage than if Theresa May were caught barbecuing a puppy, or the shadow chancellor were caught citing Karl Marx. So they'll never do it.