more crackdowns on contractors expected

[Freakbro]

One word. Liability.

Not really. A sole trader gets liability insurance just like anyone else, and if you mean 'liability' in the Ltd liability sense of not personally being liable for debts, then this sort of contractor doesn't have suppliers.

They do it to reduce their tax liability nothing else. Which as it's within the rules, fair enough, but now the rules are changing don't whinge about it

We're all in it together, remember

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.

I thought that's what the greatly inflated rates contractors get paid over permies already compensated for this? Why should the state then give them an extra tax break.

 

[dowie]

I thought that's what the greatly inflated rates contractors get paid over permies already compensated for this? Why should the state then give them an extra tax break.

Yup, people mentioning that contractors don't get sick pay/holiday are missing the point. They negotiate how much the bill and can take into account holidays etc... they are free to pay themselves 40 days holiday if they like, 'holiday pay' is meaningless really when you're paying yourself minimal amounts via PAYE and the rest in dividends.

 

[BusError]

For me it's more than just paying myself using a LTD, it's also being able to sub contract stuff out to others, so I can pick up projects that are bigger than 'me'. I can't so that by being freelance (I used to).

With the LTD I can 'appear' as a small consultancy, and I do.. with a small group of like minded people I can 'face' as team and get bigger contracts. I pick a small cut of business I bring in, and I sub-contract to my 'colleagues' who just invoice me for their work.

 

[Freakbro]

For me it's more than just paying myself using a LTD, it's also being able to sub contract stuff out to others, so I can pick up projects that are bigger than 'me'. I can't so that by being freelance (I used to).

With the LTD I can 'appear' as a small consultancy, and I do.. with a small group of like minded people I can 'face' as team and get bigger contracts. I pick a small cut of business I bring in, and I sub-contract to my 'colleagues' who just invoice me for their work.

And none of the mechanics of that working is different being a sole trader, other than your and maybe other peoples perception of status.

 

[dowie]

For me it's more than just paying myself using a LTD, it's also being able to sub contract stuff out to others, so I can pick up projects that are bigger than 'me'. I can't so that by being freelance (I used to).

With the LTD I can 'appear' as a small consultancy, and I do.. with a small group of like minded people I can 'face' as team and get bigger contracts. I pick a small cut of business I bring in, and I sub-contract to my 'colleagues' who just invoice me for their work.

well that is different - it is individual contractors/hidden employees not people who can contract stuff out to others too that the govt are concerned about - you're not the sort of person they're targeting. On the other hand the people you're employing as individual contractors might be.

 

[Tuppy_Glossop]

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?

Some of us do exactly that. I have friends laughing at me because they pay about a fifth of the tax I pay.

 

[dowie]

lots of companies won't deal with sole traders

 

[Freakbro]

Some of us do exactly that. I have friends laughing at me because they pay about a fifth of the tax I pay.

Usually when they are laughing about this they are just making the direct comparison in personal tax, and not taking into account the corporation tax they pay

 

[Freakbro]

lots of companies won't deal with sole traders

I appreciate that, but like I said, isn't that just a perception of status rather than any difference in mechanisms?

 

[dowie]

nothing to do with status - I'm not sure why the admin bods in accounts/finance would even care about the perceived 'status' of some random contractors or sole traders they've chosen to bring in

http://www.contractoruk.com/agencies/contractors_questions_why_dont_agencies_deal_sole_traders.html

The fundamental reason that agencies and some end clients would rather not deal with contractors operating as sole traders is a piece of tax legislation. Under the Income Tax (Earnings and Pensions) Act 2003, such a dealing could potentially result in the agency having to ensure PAYE and National Insurance are deducted from payments made to individuals (sole traders) who are under a degree of control / supervision from the end client.

 

[Freakbro]

nothing to do with status - I'm not sure why the admin bods in accounts/finance would even care about the perceived 'status' of some random contractors or sole traders they've chosen to bring in

http://www.contractoruk.com/agencies/contractors_questions_why_dont_agencies_deal_sole_traders.html

Fair enough, I don't have much dealings with contractors and was unaware of that legislation.

Though there seem to be a lot of 'would rather not' and 'potentially'....it sounds like it might be an overlap with IR35?

But like I say, this is not my forte, so I'll keep quiet now

 

[Tuppy_Glossop]

If you are good enough then they contract you.

 

[dowie]

it isn't really mine either - I just had a good look into it recently as I've been offered a few quite tempting ones, though one of them involved going to another European country which would potentially complicated things even more

If you are good enough then they contract you.

not that simple, especially not in a larger organisation regardless of how much the hiring manager wants to bring in the person - though frankly it isn't hard to set up a ltd so the contractor would have to be a bit weird for that to be a deal breaker

 

[Tuppy_Glossop]

Reading your link I suppose it must be mostly agencies who take this position. It has never been a problem for me.

 

[v0n]

Ltd also allows for personal and business finances to be distinct, this in turn allows for Ltd company can be part of partnerships, hold shares easier and more tax efficient than sole private entity etc. In some industries liability insurance is structured in such a way that a claim made against your company, would almost certainly incur personal liability unless you were limited company and sometimes it wouldn't even be possible to get a contract as a sole trader, simply because of inherited legislations or liabilities when person hiring or leading other people is involved instead of proper sub-contractor hiring temporary staff etc. And there is no denying that tax efficiency is much greater if you are ltd company. Being tax efficient is nothing illegal or immoral.

 

[Tunney]

Being tax efficient is nothing illegal or immoral.

It's not that simple. Exploiting loopholes in the tax system would be considered immoral by some people. Contractors have been abusing the system for decades and this abuse has forced the government to tighten the rules. These changes are going to negatively affect those who used a limited company structure for legitimate reasons (many outlined in this thread).

 

[Bear]

If you are good enough then they contract you.

Not true, many companies only deal with preferred suppliers (agencies in this case) and some agencies will only deal with you either through an umbrella company or Ltd co as in my case.

 

[v0n]

It's not that simple. Exploiting loopholes in the tax system would be considered immoral by some people. Contractors have been abusing the system for decades and this abuse has forced the government to tighten the rules.

It's not a loophole if it's regular procedure and the only viable scenario. Corporation wants contractors rather than PAYE employees because either their contract supply chain stipulates so, or they need to be able to close product/project quickly without overhang of redundancies etc . The contractor must be Ltd company for either insurance, liability hand over or tax purposes. Ltd company operates with corporate tax and dividends. As simple as that. That is regular scenario, not something perpetrated by secret cabal of crooks looking for imperfections in tax law to play the system. You would have to go out of your way to overpay your taxes to be anything else than what people currently are in contracting world.

 

[Tuppy_Glossop]

Not true, many companies only deal with preferred suppliers (agencies in this case) and some agencies will only deal with you either through an umbrella company or Ltd co as in my case.

I don't use agencies. It has never been a problem for me.

 

[Tunney]

It's not a loophole if it's regular procedure and the only viable scenario.

Setting yourself up as a Limited company is regular procedure. Using that structure to pay yourself minimum wage and then take the rest out as a dividend is a loophole.