Restricting limited companies?

neviditelny · 5 Mar 2017 at 04:12

I work for the NHS and work with quite a few agency nurses who all do agency for a lot of various reasons. Most of them do use their own limited companies for pays and so and in the last few weeks I've heard a lot about that the government will be restricting these companies in what they can claim etc. It also only seem to be against nurses what I've heard (I might have missed something though)

I'm just curious about how they would be able to restrict just one set of businesses and not others who do run their own limited companies. Wouldn't it be able to fall into discriminatory laws or so? And how would you be able to see what each company does work with? I don't know much at all about how limited companies works or what company laws and so are like in UK, but I just find some of this stuff strange.

And wouldn't it be still quite a few ways around any restrictions put in place?

Bear · 5 Mar 2017 at 06:52

It isn't just nurses but all ltd company contractors that work for any government department/public sector employer, will be treated as inside IR35.

neviditelny · 5 Mar 2017 at 09:01

What will it mean with IR35?

SupraWez · 5 Mar 2017 at 09:05

neviditelny said:
What will it mean with IR35?

Treated like PAYE as far as tax is concerned, losing the tax and NI benefits of being a contractor while having the additional overheads of maintaining a Limited company.

IR35 has been around a while now, it's not new.

Rinnin · 5 Mar 2017 at 09:30

HMRC finally released a new "tool" to check if you fall inside IR35 legislation last week.
From IPSE.co.uk:
"The tool is designed to provide clarity around IR35 status and has been released now to assist public sector clients and agencies in making IR35 determinations. You can access the tool here:

https://www.gov.uk/guidance/check-employment-status-for-tax

The status of many public sector contracts will be decided by this tool. If you work in the public sector, we advise you use the tool now. Be as accurate as you can with the information you put into it."

I did it and apparently I'm outside IR35, while trying other more rigorous tests from other websites I was clearly inside.

Got my end of year accounts due soon and wondering what I should put down....

BDEE · 5 Mar 2017 at 09:36

Good. About time.

Bear · 5 Mar 2017 at 10:24

BDEE said:
Good. About time.

I can understand the reason for wanting to reduce the cost of employing temporary staff, but it could end up backfiring and cause a skills shortage in the public sector. Obviously in the cases of nurses I guess it's less so as the NHS is pretty much the main sole supplier of health care but in many other specialist roles people can just choose to work in the private sector instead and not have to deal with the hassle. Why bother being paid like an employee without any of the benefits?

Maundie · 5 Mar 2017 at 10:24

BDEE said:
Good. About time.

Agreed, I did some work for TfL and after talking to a few of the guys they are going to be hit by this, been told TfL will only take in contractors via an Umbrella company now.

SpeedFreak · 5 Mar 2017 at 13:24

Bear said:
I can understand the reason for wanting to reduce the cost of employing temporary staff, but it could end up backfiring and cause a skills shortage in the public sector. Obviously in the cases of nurses I guess it's less so as the NHS is pretty much the main sole supplier of health care but in many other specialist roles people can just choose to work in the private sector instead and not have to deal with the hassle. Why bother being paid like an employee without any of the benefits?

Surely contracting is contributing towards a perceived skills shortage? Is there a shortage of contracting nurses?

Minstadave · 5 Mar 2017 at 13:26

BDEE said:
Good. About time.

This is happening for locum doctors too.

It will make it more expensive to the NHS not less as far as I can see - as now you're getting taxed 40% on earnings the rates will go up.

It's not going to force people to stop contracting, just they'll way they are paid.

Bear · 5 Mar 2017 at 14:01

SpeedFreak said:
Surely contracting is contributing towards a perceived skills shortage? Is there a shortage of contracting nurses?

As I noted I wasn't talking about nurses as there isn't an open market for the employment of nurses as the NHS is pretty much the sole provider of healthcare. I was talking about all the other jobs that employ contractors across the public sector as a whole. For example, why would an IT specialist work and get paid as an employee for the public sector without the benefits of being an employee when they can just avoid all the aggro and work for the private sector instead and take home more money.

Pudney · 5 Mar 2017 at 16:06

Minstadave said:
This is happening for locum doctors too.

It will make it more expensive to the NHS not less as far as I can see - as now you're getting taxed 40% on earnings the rates will go up.

It's not going to force people to stop contracting, just they'll way they are paid.

I believe the main reasons for the changes are to stop public perceptions that public sector staff are enabled to avoid tax, and to increase tax revenues.

Battery! · 5 Mar 2017 at 17:03

BDEE said:
Good. About time.

About time for what?

Bear said:
It isn't just nurses but all ltd company contractors that work for any government department/public sector employer, will be treated as inside IR35.

Unless the agent placing them proves the contract is outside of IR35.

Nothing new, this has been around for years, just the government being very silly and forcing this on the agents soon in the public sector.

My contact is outside according to that tool, not sure I trust it until I have it in writing from my agency.

dowie · 5 Mar 2017 at 17:58

The vast majority of contractors really ought to be within IR35 - most IT contractors work for a single client for 6-12 months contracts (which are often rolled over), they generally can't turn up and work half a day then go to another client in the afternoon etc.. like a plumber might. They generally can't send someone in their place one day. They've generally had an interview much like if they were a real employee, albeit generally a shorter process.

There shouldn't be tax advantages for essentially being a short term employee, the pay advantages would still be there.

SpeedFreak · 5 Mar 2017 at 18:06

dowie said:
The vast majority of contractors really ought to be within IR35 - most IT contractors work for a single client for 6-12 months contracts (which are often rolled over), they generally can't turn up and work half a day then go to another client in the afternoon etc.. like a plumber might. They generally can't send someone in their place one day. They've generally had an interview much like if they were a real employee, albeit generally a shorter process.

There shouldn't be tax advantages for essentially being a short term employee, the pay advantages would still be there.

I quite agree but it is often that employers prefer a higher variable cost than a lower fixed one. I did laugh when I saw the MOD advertising for part qualified accountants at £450 per day. £100k per year for a role they could fill for £35k all in. I struggle with the logic to be honest. I can see the need for short term specialist skills related to projects, but anything beyond that is bizarre.

Bear · 5 Mar 2017 at 18:15

dowie said:
The vast majority of contractors really ought to be within IR35 - most IT contractors work for a single client for 6-12 months contracts (which are often rolled over), they generally can't turn up and work half a day then go to another client in the afternoon etc.. like a plumber might. They generally can't send someone in their place one day. They've generally had an interview much like if they were a real employee, albeit generally a shorter process.

There shouldn't be tax advantages for essentially being a short term employee, the pay advantages would still be there.

Surely it would depend on the engagement? If they were brought in to complete a defined work package then it wouldn't be any different to getting in a builder to completely renovate a house for you which takes say for sake of arguement 6 to 12 months. If they were doing ad hoc work like any other employee then it could be argued as you say.

dowie · 5 Mar 2017 at 18:20

It is rather different to a builder - they'll not tend to work alone for a start but will bring along others they employ or subcontract work to.

Can an IT contractor turn up when he wants, delay parts of a project because he's decided to outsource part of it to some guys in India? No chance in most cases, the company contracting him will generally expect that he alone performs the work.

If you were setting up a small consultancy firm then maybe that would be getting closer to the builder comparison.

Bear · 5 Mar 2017 at 18:26

SpeedFreak said:
I quite agree but it is often that employers prefer a higher variable cost than a lower fixed one. I did laugh when I saw the MOD advertising for part qualified accountants at £450 per day. £100k per year for a role they could fill for £35k all in. I struggle with the logic to be honest. I can see the need for short term specialist skills related to projects, but anything beyond that is bizarre.

It's because of the way businesses do their accounting, as employees pay (fixed costs/payroll) comes out of a different pot of money compared with contractor staff (cap ex) which is usually attached to a given project budget.

dowie said:
It is rather different to a builder - they'll not tend to work alone for a start but will bring along others they employ or subcontract work to.

Can an IT contractor turn up when he wants, delay parts of a project because he's decided to outsource part of it to some guys in India? No chance in most cases, the company contracting him will generally expect that he alone performs the work.

If you were setting up a small consultancy firm then maybe that would be getting closer to the builder comparison.

Depending on the engagement, yes a contractor can turn up when he wants as the onus is on the delivery of the defined work package by a certain time, it's up to him how that work package is delivered. In fact it's one of the key components of being outside of IR35 (direction and control). Generally no client wants parts of the project delayed so it's not really relevant to what defines a contractor. After all, your reputation is defined by your ability to give what your client wants in the time they want it.

SpeedFreak · 5 Mar 2017 at 18:36

Bear said:
It's because of the way businesses do their accounting, as employees pay (fixed costs/payroll) comes out of a different pot of money compared with contractor staff (cap ex) which is usually attached to a given project budget.

Accounting treatment (tax excluded) in most cases does not drive decisions. In my experience with large capital projects it is usually the residual cash flows that determines if we proceed. Internal salary costs can still be capitalised if they can be directly attributed to the project (it is common to do so with IT and engineering staff). You are right in that the costs are from different budgets, but with sound oversight contractors should only be used if it can't be avoided.

dowie · 5 Mar 2017 at 18:57

Bear said:
Depending on the engagement, yes a contractor can turn up when he wants as the onus is on the delivery of the defined work package by a certain time, it's up to him how that work package is delivered. In fact it's one of the key components of being outside of IR35 (direction and control). Generally no client wants parts of the project delayed so it's not really relevant to what defines a contractor. After all, your reputation is defined by your ability to give what your client wants in the time they want it.

Realistically if you rolled up at lunchtime at some bank and decided you were going to work till 8pm instead that night as you had another job on that morning then I don't think they'd be too happy - what you contract states to get around IR35 and the actual reality of contracting is rather different. Every contractor I've ever worked with has basically been a hidden employee, I can't think of any exceptions in over 8 years working in financial technology. Some even provide application support to banks, they've got a set shift pattern even.