more crackdowns on contractors expected

Well I'm currently working toward making a small 'consultancy' with a few mates, and 'pool' our resources somehow. Not sure /exactly/ how it's going to work in practice, but it seems that we need to find a way to put ourselves outside the radar envelope...

BusError said:

Well I'm currently working toward making a small 'consultancy' with a few mates, and 'pool' our resources somehow. Not sure /exactly/ how it's going to work in practice, but it seems that we need to find a way to put ourselves outside the radar envelope...

Click to expand...

well you could perhaps all pay yourselves minimum wage and then monthly bonuses based on billable revenue generated... you'll need to accumulate a small amount in reserve though presumably for the scenario where someone has a long gap between jobs

your monthly 'bonuses' based on revenue would therefore need to also potentially be used to first pay back any deficit incurred from when you have a gap in employment

person A gets contract... gets min wage + revenue bonuses... person A has a gap before his next contract... carries on drawing minimum wage, paid for by your collective reserves. Person A gets new contract... initially his revenue bonuses are smaller as a portion of them are used to pay back whatever he cost the partnership when he was drawing min wage and not billing. Essentially you'd all have to be responsible for that extra fixed cost of a pool of funds to pay people during gaps and the shared cost of some accountant to keep tabs on it all, payroll company etc...

you'll likely also need to be prepared to take a hit - someone is out of work for X months then sack them from the consultancy. If someone wants to plan to leave for a long gap then have them resign - they get back their share of the pooled reserves.... If someone new wants to join then have them pay their portion of the pooled reserve up front or have it come from reduced monthly bonuses until they've contributed the same amount to the reserve as everyone in the partnership.

If you get a bad egg who isn't able to find work, draws the min wage salary for months and takes a while to get rid of then everyone else might have to make further contributions to the pooled reserve if he ends up costing more than his personal contribution before he can be sacked.

At least that is how you could do it on a cooperative/partnership basis where everyone basically eats what they kill and you can all get paid a salary and be employees.

Though frankly if you're going to go to the effort of setting something up then personally I'd look at recruiting more consultants as non partners... bit of extra work to get them into roles and start taking a % of their billable hours too... if you can collectively start landing projects together then start a 'grad scheme' for your start up consultancy - pay them '30k' + 'bonus' while billing them out at a juicy daily rate.

Basically he found 23 billion down the back of the sofa so contractors along with police and others get let off in this business budget.

Will happen at some point though.

Greebo said:

Basically he found 23 billion down the back of the sofa so contractors along with police and others get let off in this business budget.

Will happen at some point though.

Click to expand...

I don't think so - the better forecasts/extra cash probably helped save tax credits... the police cuts are probably partly that too and partly the Paris attacks

I don't think the lack of action on contractors has anything to do with that though, it is more likely that they've simply not yet got a coherent strategy yet on what to do. I'd expect he'll still announce some form of crack down within a year.

dowie said:

I don't think so - the better forecasts/extra cash probably helped save tax credits... the police cuts are probably partly that too and partly the Paris attacks

I don't think the lack of action on contractors has anything to do with that though, it is more likely that they've simply not yet got a coherent strategy yet on what to do. I'd expect he'll still announce some form of crack down within a year.

Click to expand...

I'd agree with you that they ideally wanted more time but if they hadnt have got their £23 billion windfall they would have needed all the extra tax revenue from the contractors changes to keep the affects on tax credits and police etc to a minimum.

Greebo said:

I'd agree with you that they ideally wanted more time but if they hadnt have got their £23 billion windfall they would have needed all the extra tax revenue from the contractors changes to keep the affects on tax credits and police etc to a minimum.

Click to expand...

From what I have read, they had not long given the proposals to the CBI to consider, I doubt very much that the CBI would have considered it fast enough for Osborne to put it into the Autumn statement.

Even if they did, the proposed £400m is a long way off the figure needed for that £19B spend. As I said earlier, I think it will be coming, perhaps in the March budget but hopefully it will be better drafted i.e. just get us to pay more tax if that's what they want.

looks like they're just attempting to crack down on contractors working in the public sector and for state owned organisations like the BBC, Channel 4 etc.. I guess this plan is easier to enforce

http://www.msn.com/en-gb/money/taxe...ees-as-freelancers/ar-AAgIlXB?ocid=spartandhp

Around 20,000 public sector workers are avoiding an average of more than £3,500 a year in income tax and National Insurance Contributions under the current system, according to the Government.

Sources claimed that an estimated 90% of earners who should comply with the rules do not.

Under the Chancellor's clampdown, state-backed organisations, instead of the individual, will become responsible for deciding if income should be taxed at source.

New guidelines will also be introduced to make it clearer when employment taxes should be paid.

MPs criticised the BBC in 2012 after it emerged 3,000 people were paid through personal services companies, potentially allowing them to limit their tax liabilities.

Click to expand...

They need to be very careful what they do. I know some permitractors (10years+ in one place, want to be treated like a perm but with the contractor salary), doing the same job as a perm (so not a consultant) and rightly so should be taxed much more. However, others provide a crucial short term service to many organisations. As they move around a lot they incur a lot of expenses, have to be away from their family and would not be able to provide this service if HMRC get their way as it just wouldn't be worthwhile to do.

It's funny I read what HMRC might do regarding contractors yet I know some of the borderline illegal service companies are still in operation. I think the government needs to get to the bottom of those rather than trying to rip into the contractors who run themselves as a business (paying corp tax etc). THere are cases going through the courts at the moment but the companies involved are still running a service for other contractors with even more complex tax avoidance schemes in place to work the current rules.

For anyone who thinks contractors take the mickey, they get no paid holidays at all (not even public holidays), get no sick pay, have to fund their own pensions and what happens if they're long term sick? They wont get 6months to 2 years full pay like perms get unless they have expensive insurance policies in place. There are risks involved hence they need a higher contract rate.
In fact some say for a contract to be worthwhile it needs to be greater than an equivelant perm salary / 100. So, someone on a £50k annual perm salary needs to be earning at least £500 a day(such contracts are not common) on a contract otherwise they're better off sticking with a perm position. Many fail to consider the travel time too. Contractors tend to come from further away so their daily rate needs to be divided by more hours to get the real hourly rate.

I fear if the government gets their way the longer term impact will be a higher cost to companies using contractors which will not help the economy because the good contractors will demand a higher rate

Good, and about time.
There is no reason a senior govt employee, or council ceo or similar should not be PAYE within their job role, and taxed at source.

DarrenM343 said:

For anyone who thinks contractors take the mickey, they get no paid holidays at all (not even public holidays), get no sick pay, have to fund their own pensions and what happens if they're long term sick? Wont get 6months to 2 years full pay like perms get. There are risks involved hence they need a higher contract rate

Click to expand...

That isn't the sort of contractor they are going after.
Someone employed by the BCB as head of programming, shouldn't be contracting their services when they have had the role for many years, and simply do it to up their expenses and avoid tax at source. Same for those in senior civil service jobs.
If you employ people below you, tiers and tiers of people, and are responsible for their hiring and firing, and other managerial roles, you yourself should be classed as an employee of that organisation.
There is nothing short term about it.

Hikari Kisugi said:

That isn't the sort of contractor they are going after.
Someone employed by the BCB as head of programming, shouldn't be contracting their services when they have had the role for many years, and simply do it to up their expenses and avoid tax at source. Same for those in senior civil service jobs.
If you employ people below you, tiers and tiers of people, and are responsible for their hiring and firing, and other managerial roles, you yourself should be classed as an employee of that organisation.
There is nothing short term about it.

Click to expand...

Agree with what you are saying but they're also out for contractors in general at the moment too. One change that filtered through so far is from APril 2016, the majority of contractors will have to pay at least £2k more in tax.

DarrenM343 said:

Agree with what you are saying but they're also out for contractors in general at the moment too. One change that filtered through so far is from APril 2016, the majority of contractors will have to pay at least £2k more in tax.

Click to expand...

You mean they fixed the tax gap, to make dividends not just as tax avoiding as they were previously, or do you mean another change.

I've been presented with a contracting opportunity and am currently considering whether to accept it or not. This thread has been genuinely useful.

Shouldn't ir35 take care of this?

Hikari Kisugi said:

Someone employed by the BCB as head of programming, shouldn't be contracting their services when they have had the role for many years, and simply do it to up their expenses and avoid tax at source. Same for those in senior civil service jobs.

Click to expand...

Very often these people provide consultation services to more than one company. High ranking specialists often have sits onboard other organisations, teach, run departments of schools or tenures in health system. The higher you go, the better specialist, the more likely he is to hold more than one job. Current tax system has no easy answer for these people other than limited company, semi permanent contracts and dividends. Those people are not doing anything illegal, they are not playing the system - they are doing the only thing available to them. Why should anyone put limits on their success or involvement in progress of technology and for what reason?

Freddie1980 said:

Shouldn't ir35 take care of this?

Click to expand...

There is a big difference between 'should' and 'does'.

v0n said:

... Current tax system has no easy answer for these people other than limited company, semi permanent contracts and dividends. ...

Click to expand...

I would argue that there is no legal reason why the person should pay themselves with dividends. People simply do it because it currently incurs less of a hit in tax than a PAYE salary.

estebanrey said:

Or you could just pay tax like everyone else then not feel you're taking the mick using the roads, schools and hospitals we all enjoy.

Click to expand...

How's life up in the Ivory tower of paid holidays, sick pay and employee rights?

v0n said:

Very often these people provide consultation services to more than one company. High ranking specialists often have sits onboard other organisations, teach, run departments of schools or tenures in health system. The higher you go, the better specialist, the more likely he is to hold more than one job. Current tax system has no easy answer for these people other than limited company, semi permanent contracts and dividends. Those people are not doing anything illegal, they are not playing the system - they are doing the only thing available to them. Why should anyone put limits on their success or involvement in progress of technology and for what reason?

Click to expand...

Why are they not sole traders, invoicing out their work. They do not have expenses as such as all they are selling is their experience and expertise. So why do they not bill for their work, and pay normal tax rates instead of employing themselves and taking a share dividend from themselves as they claim to be a company?

They really need to just set up a new kind of business tax entity purely for contractors and do away with all this confusion.

Put taxes in line with PAYE but provide tax credits for X amount of annual leave and credits for certified sickness based on average rates over the fiscal year.

Hikari Kisugi said:

Why are they not sole traders, invoicing out their work.

Click to expand...

One word. Liability.