more crackdowns on contractors expected

[dowie]

http://www.cipd.co.uk/pm/peoplemana...-off-payroll-workers-expected-this-month.aspx

The government’s expected clampdown on paying workers via an umbrella company or Personal Service Company (PSC) to pay a lower rate of tax will place a “huge administrative burden” on employers, experts have warned.

Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA), said that any tightening of the rules could force employers to put these individuals onto their payroll as employees.

Her warning came amid reports that chancellor George Osborne will make an announcement in his autumn statement later this month on the use of contractors who work for one company but are set up to avoid paying national insurance contributions.

Under the existing rules, employers also benefit because they end up with smaller national insurance and pensions bills.

To be fair contractors do take the mickey - I know plenty of people working in IT who are essentially short term employees dodging tax. The daily rate in itself is sufficient to compensate for the additional 'risk' not being in a perm role presents - the tax/NI dodging part is a fair target IMO.

"I think for a long time the writing has been on the wall that either the individual needs to be an employee either of the agency or the business that they are working for, rather than going through any other vehicle. If they are working for you solely for any length of time they will probably have to be treated as an employee. Auto enrolment, holiday entitlement and sick leave will all be part of the mix and things like the national minimum wage could all have an impact."

 

[dowie]

Expect LTD company registrations to soar.

this is cracking down on people working through ltd companies

 

[dowie]

Correct me if I'm wrong but they are different?

http://www.sjdaccountancy.com/about/ourservices/ltd_vs_umbrella.html

umbrella companies are different to personal service companies - this article is talking about both

 

[dowie]

not yet, you'll have to wait a couple of weeks for the autumn statement

 

[dowie]

Umbrella companies are only used by short term contractors.
For the ignorant, an umbrella is basically when you're employed by your accountant PAYE.

This is a clamp down on low paid IT workers basically.. Contractors who earn big bucks are LTD companies as it's more tax efficient.

This is just the government screwing the bottom end of the market, again.

no, someone else made that mistake - the OP refers to both umbrellas and ltd companies

a PSC is a ltd company

 

[dowie]

There will be a way around it. There always seems to be another loophole.

Might have to close my side business and rely on being a sparky then if this goes through (don't always have enough on the go if this 1 month 1 contract bit is true).

there doesn't have to be - for example there isn't much tax advantage to being a contractor in Australia AFAIK

Also, There is no permanent job that would pay me what I'm worth... in high level engineering, you cap at 80 GRAND MAX with no hope of going higher, ever. As a contractor I do 120k+ because I'm an expert at my stuff. I'm *vastly* more valuable than mid-managers who makes 90k sharpening their pencils, but the current ethos of the workplace is that engineers are not 'worthy' while idiots with an MBA are.

Also, I don't /want/ a perm job. I want 6 months projects, I don't want company politics, I want to be paid by the hour -- take half a week off if I like, and take another client if the current one sucks.

I personally think it's the future of employment -- 'permies' think they have job stability, but as a developer, I've never stayed more than 4 years in a company, and I've been working for 25 years as one.

I think if this comes to pass, it'll just be a question of teaming up with someone else, and share the proceeds. Ie, a 2 man LTD instead of a 1 man one.

well if you set up a small consultancy then fair enough - your consultancy can bid for projects, you'll have more incentive to pay yourself via salary/bonus as any dividends would be divided according to the % you own

I'm sure there will be a few small consultancies being set up if this sort of thing goes through

the problem is people essentially being employees but being paid off the books/dodging tax and NI

 

[dowie]

Thing is employers/companies like it as well (which is why they hire contractors and not just permanent staff) - they don't need to provide training, progression, pension, holiday etc etc and they can basically hire and fire them as they please.

I'm not saying the tax issues shouldn't be addressed, but the way to do it isn't by basically not allowing contractors at all.

I'm sure they do like not having to provide pensions and getting employees on the cheap - that isn't necessarily a good reason why we shouldn't have these changes

Agreed, but once you start earning £100k plus as a contractor it probably shifts the other way due to how the tax system works, expenses being a fairly fixed cost all things being equal etc and staff salaries leveling off.
Also as someone technical in a niche area you probably pay more tax as a contractor due to the day rates you can command being significantly better than the equivalent staff salary.

when people talk about paying more tax they tend to be referring to the % tax you pay not what you hypothetically might make in absolute terms with a salary

contractors tend to pay much less in tax

 

[dowie]

The government is trying to clamp down on the likes of Facebook too. This isn't an either/or situation.

yup - similarly whenever we have cuts to benefits people bleat about tax avoidance

they're trying to tackle companies moving profits offshore, they've cracked down on BTL landlords, they've cracked down on buying properties through a company and they're cracking down on people who should be employees dodging tax/being paid off the books

fact is the Chancellor genuinely is trying to get the tax we're owed in addition to cutting spending

 

[dowie]

I think he's finally doing more of the former because he's realised he can't do as much of the latter

he's been doing both, it isn't like he can only introduce one change at a time - I'm sure there will be further cuts announced too in two weeks

 

[dowie]

What I'm getting at is that some people pay more absolute tax as a contractor than they would as an equivalent staff member, so the governement benefits from this situation in regard to taxes.

I'm not saying the tax rules for contractors shouldn't be looked at/altered, but sometimes you need to look at the bigger picture.

maybe you'll get more tax still from consultancies - a consultant probably earns much more than typical IT staff and if there is a genuine need for short term project work rather than simply paying people off the books then companies can still bring in people - for long term 'contractors' who are essentially just staff being paid off the books they could just as easily be paid PAYE on a high salary

 

[dowie]

I still worry about enforcement though. Adding new laws needs to be backed up by greater investment in prosecuting those who break these rules. Unfortunately, enforcement budgets are going in the opposite direction.

true - if anything increasing HMRC's budget ought to bring in more revenue

frankly we ought to put tax inspectors on private sector like bonus schemes and start poaching them from tax consultancies/big 4 etc..

 

[dowie]

Regarding your latter point this often isn't the case for technical/niche roles - salaries level off and won't go any higher unless you go into management. This is why some people like going contract because they get well paid for having technical skills, and you just can't get an equivalent staff salary to match.

that isn't necessarily true, there are companies paying rather well for technical people - frankly if a company can employ a contractor on a long term contract where they're essentially an employee anyway then they can pay a similar-ish rate for an employee (albeit slightly reduced to cover pension etc..)

some contractors no doubt are taking the mickey and are blagging roles, jumping between contracts - but if someone is genuinely really highly skilled and valuable then you might well see pay increases - if some of these companies are reliant on these long term highly paid contractors then they'll have to pay some of them well to keep them on after these changes come in... others who aren't so essential will suddenly find they can't justify the pay they want

 

[dowie]

As a contractor, I don't have a problem with paying more tax, if they want me to pay more NI and income tax fine, but the way they are doing it will have unintended consequences.

The way they are talking, seems to imply anyone that has been contracting for a long time for one client is a permanent employee and so should be on the pay roll is a load of nonsense.

I contract for a defense company and if anyone knows anything about defense projects know that last for ages, I've been contracted to a project for years and am still working on it, all the while my position has been advertised as a permie role and had no takers. On top of this I fly every week from Bucks to Scotland to work for this company, in fact like many contractors that work all over the country.

If I was to be forced onto the pay roll, I wouldn't be able to work there any longer, because their salary bands would not allow the headline cost so I wouldn't be able to afford my travel costs and digs up in Edinburgh. So I would have to find a local job and a company the other end of the country loses a flexible resource with a set of narrow requirements. The only reason I work in Scotland in the first place was because I was made redundant and couldn't find work anywhere near me.

If what is implemented is what is currently rumored, it could destroy the flexible workforce many companies rely on, as they cant recruit from the local areas they are in, Scotland being a prime example.

Before anyone says, why don't I move up to Scotland then, my wife is an HR director of a large US company and works locally so I don't intend to leave her for a job.

well that is an internal problem for the organisation you work for rather than a problem with long term contractors becoming employees - perhaps some employers (whether public sector or otherwise) had better address those issues

if they can afford to employ you as a contractor for several years at a high rate then they ought to be able to pay you as an employee instead - it is the banding that is the issue there not the employee status

 

[dowie]

Because they normally expect people to live relatively close to where they work, not at the other end of the UK in my case. I'm well aware that isn't the case for all contractors though

that isn't a reason...

so what if you don't live close by - that doesn't have to affect your status as an employee or a contractor

fact is you're working there for years - you're basically an employee in all but name - you're exactly the sort of person this is aimed at and rightly so

 

[dowie]

What would happen to all those overseas contractors they bring in from india etc.?

nothing, they're not mostly working for their own companies - they are already salaried employees of the consulting firm

 

[dowie]

Also you will find that contractors are normally paid out of project funds as a cost to deliver that project - that equals CAPEX

Permies are normally a part of the ongoing costs of running a company and are paid out of OPEX

CAPEX are almost one off costs that are accepted and signed off to get something delivered so you cant just say offer the same role as a permie as that costs is ongoing when a projects finishes and you can imagine the outcry if companies just fired and hired people on a whim

well you can still bring in people on a short term basis - just not one man band companies - there is obviously going to be a market for small consultancy firms

the issue is people who aren't short term but are basically employees

 

[dowie]

I never said distance makes a difference to whether you are an employee or not. Under HMRCs own rules my working practices says otherwise, so your fact stands for nothing as you quite clearly don't understand what you are taking about. My day to day working practices are not like employees at all which is the test for IR35

you're just mentioning irrelevant stuff though, there isn't anything special to understand or at least you've not done a good job of higlighting anything, you're welcome to point out anything that has been missed - so what if you work far away or supposedly have some unique working practice? - what difference does that make to you being able to, having worked somewhere for years, be treated like an employee - the only thing it seems to point to as a hurdle is a lack of flexibility on the part of your employer

 

[dowie]

If you think the legal definition by HMRC of a disguised employee is irrelevant to the dicussion of whether to treat a contractor as an employee or not the I'm not going to waste my time on a dime bar moment for you.

this is just more waffle - the thread is about proposed changes so yes the fact you're IR35 compliant at the moment is irrelevant

you've not pointed out any good reason why your current employer can't treat you as an employee so far - all you've pointed out is that you're paid a high amount and live far away and that you currently comply with IR35 - so what?

fact is if you've been working there for years you probably should be an employee

 

[dowie]

dont think this has bene mentioned:



That in itself implies that if you apply using an agent, nothing changes?

no, if you work for short periods at different places then you can carry on as a contractor

if you're staying at the same place for a prolonged period then you should be an employee

 

[dowie]

Rubbish. No you shouldn't as there is no reason to make a temporary worker into a permanent member of staff.

erm yes there is - the proposed legislation aka the topic of the thread and what I was referring to in that post if you read it in the context of the post it was quoting