Recent decisions by major employers such as Barclays and Lloyds to bring all contractors onto payroll have ruffled feathers in the contractor community. Six months before IR35 legislation is extended to the private sector, do employers face a talent drain or can they still engage with a flexible, self-employed workforce without facing the wrath of HMRC? Jo Faragher investigates.
Contractors in the banking sector will have been mulling over their career options in the past few weeks. Around six months before the IR35 tax legislation comes into effect for private sector companies, a host of banks including Barclays, HSBC and most recently Lloyds have informed contractors that they will only be engaged if you go on the payroll and pay as you earn (PAYE).
For thousands in the freelance community, these demands could mean significantly less take-home pay and reduced flexibility in how they work. The shift has already happened in the public sector. In April 2017, the government amended existing IR35 legislation so that public sector organisations employing contractors working through limited companies – meaning they pay less tax and national insurance – would now be responsible for deciding whether they were inside or outside of IR35.
IR35 in the private sector
IR35: HMRC publishes private sector tax rules
Off-payroll working: How IR35 rules affect the private sector
Genuinely self-employed contractors are deemed to be outside, but if you are considered inside IR35, HMRC expects you (and your employer) to pay the same tax and NI contributions as other, permanent employees.
From April 2020, these rules extend to the private sector – and as recent headlines have shown, a number of organisations have opted to avoid the risk altogether by simply demanding everyone goes on the payroll. Don’t like it? Go elsewhere. In the gig economy era when the buzzwords are flexibility and agile, this seems counter-intuitive to say the least.
Shift in responsibility
Is the banks’ reaction over the top? When the changes to the legislation were announced, HMRC claimed that the legislation was not designed to discriminate against genuinely self-employed people, although it is expected to raise £1.1 billion for the Treasury in its first year. Its aim is to clamp down on “disguised employment” – the practice of engaging a worker and treating them as self-employed but to all intents and purposes they’re an employee.
Now that the onus is on the employer, rather than the contractor, to ensure they’re paying the appropriate level of tax, it’s understandable that they want to mitigate any risk. But many believe they’re taking it too far.
“Some [organisations] are refusing to engage with the rules, saying ‘we just won’t take on any contractors’, when there are a lot of genuinely self-employed contractors who won’t even be given the opportunity to demonstrate they work outside IR35,” says Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self Employed (IPSE).
“If you decide that the relationship is one of employer and employee going forward, then there will be consequences from that. Are they then owed holiday pay? Do they acquire the right not to be unfairly dismissed? In theory this could be an issue” – Kevin Charles, Crossland
So what can companies learn from the public sector’s experience? Shortly before the new rules came into effect in 2017, there were widespread predictions that contractors would take their services to the private sector rather than be forced to go on payroll.
One London NHS Trust lost 30 IT contractors on an already-overrunning migration project after it said it would declare them to be inside IR35. HMRC delaying the launch of its Check Employment Status for Tax (CEST) tool until a matter of days before the legislation came in did not help.
“The public sector’s cautious approach to IR35 by deeming entire contractor populations as inside only created further problems, with many contractors quickly leaving their roles to pursue other assignments – and often with competitors – or pay rates increasing considerably in order to retain their services and skillsets,” says Phil Beardwood, compliance and assurance director at the Morson Group. A recent survey by specialist legal firm Brookson Legal found that three in five private-sector contractors will consider working elsewhere if they are found to be inside IR35.
Transparency or talent drain?
Amit Kapoor is a commercial manager in a central government department and also runs his own intermediary company, Mindful Contracts, employing about 40 contractors. He says the rule change has in some ways made things more transparent.
“In some ways it’s become easier and more assured,” he says. “Any declaration happens upfront, rather than the contractors having to self-certify, only to be disproven later on. Now they can pick and choose the jobs they apply for. They also know that any questions will be asked of the client rather than the contractor themselves.” However, with some employers only advertising roles inside IR35, there’s no doubt that the available pool of talent has reduced, he adds.
It’s this that could force private sector companies to loosen any blanket policies on hiring contractors, believes Julia Kermode, chief executive of the Freelancer and Contractor Services Association. “In the public sector a number of employers made similar decisions [to Barclays et al] but reversed the decision for key contractors who said they would only work for them through a limited company. They had increasingly long lists of exemptions – the workers it was OK to engage with in a different way.”
In terms of preparation, it’s a good idea to do an audit of your contractor workforce now, advises Anna Cope, a partner at law firm CMS. “You can still engage with contractors through limited companies, but if their services are provided through an intermediary you may need to take on those additional payroll costs such as employers’ national insurance contributions,” she says.
Ultimately, it will come down to commercial realities – if there’s an IT contractor that would be impossible to replace but who insists on working outside IR35, there may be ways the two parties can work together to come up with a satisfactory arrangement. Other additional factors to consider include demands for rate rises (contractors forced to work inside IR35 could end up taking home around 25% less after tax), and contractors’ expenses (certain expenses will now have to come out their post-tax wages, which could mean a substantial reduction in take-home pay for contractors who travel).
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Kapoor argues that companies should “open their minds rather than giving up before they’ve even tried”, for example considering the rules around substitution, which asks if the contractor send someone else in their place. If not, they are more likely to be deemed inside IR35. “All you have to do is prove that you could substitute, or that you would – it’s a hypothetical scenario,” he says.
Matt Fryer, group compliance director at the accountants Brookson, suggests that companies explore whether treating someone “slightly differently means you can employ them in much the same way”. He adds that the IR35 conundrum should not be solved by HR or compliance departments alone – it’s a business-wide talent decision.
“Some are refusing to engage with the rules, saying ‘we just won’t take on any contractors’, when there are a lot of genuinely self-employed contractors who won’t even be given the opportunity to demonstrate they work outside IR35” – Andy Chamberlain, IPSE
“Get a working party together,” he advises. “And don’t forget about your current contractors – they’ll be starting to ask questions now about how you’ll treat them post-April. Bring them on the journey with you.”
When it comes to determining status, HMRC advises employers use its CEST tool, but it has been slated for its accuracy. While HMRC says the tool has been rigorously tested and unbiased, one anti-IR35 campaigner went as far as saying the taxman’s defence of the tool was akin to “climate change denial”.
From next April, public, private and third sector employers will be obliged to present contractors with a Status Determination Statement, which clearly outlines and explains the reasons behind the decision to deem the individual outside or inside IR35. As long as employers can show they have taken “reasonable care” to come to the decision and file the appropriate tax documents, says HMRC, they should avoid being penalised.
One potentially contentious issue that could come up is how companies should respond if individuals feel that – since they’ve been deemed an employee for tax reasons – they claim employee status in employment law too.
Kevin Charles, consulting barrister at Crossland Employment Solicitors says: “If you decide that the relationship is one of employer and employee going forward, then there will be consequences from that. Are they then owed holiday pay? Do they acquire the right not to be unfairly dismissed? In theory this could be an issue.” Because the tests for determining status are so similar – such as levels of control, ability to substitute, mutuality of obligation – it’s hardly surprising that a status decision on tax could also raise questions on employment status.
HMRC itself is not immune – Susan Winchester, a marketing consultant employed on a contract basis to the tax enforcement body, took it alongside a recruitment agency and three others to the employment tribunal last year. HMRC had run the CEST tool to determine her status, and the tool decided that IR35 applied. She was forced onto an agency’s payroll, leading her to argue that because she had effectively become an agency worker, she was therefore entitled to holiday pay and to the same holiday entitlement as HMRC employees. She won her claim for more than £4,000 in owed holiday pay.
The public sector’s cautious approach to IR35 by deeming entire contractor populations as inside only created further problems, with many contractors quickly leaving their roles to pursue other assignments – and often with competitors – or pay rates increasing considerably in order to retain their services and skillsets” – Phil Beardwood, Morson Group
Dave Chaplin, CEO of ContractorCalculator, compares the reaction to the upcoming changes as being “like everyone doing 110 miles per hour for the past 19 years with no speed cameras” – when the burden of proof of status lay with contractors, employers were generally “lazy” and fell into habits of engaging people who were effectively employees, he says.
Now they will have to look more closely at how they structure their workforce. “If they start again and look at their business they can absolutely reengage with these people,” he adds. “What they can’t do is manipulate things and dress them up.”
Kapoor says this process needs to be more than just cosmetic: “The danger is that some organisations (often at the behest of agencies) could just choose to make cosmetic changes to make the job descriptions or statements of work to give it the appearance of being outside of IR35, while the underlying job remains inside.
“This is an area where HR within the organisation can play a role in applying their expertise on roles and responsibilities – to provide assistance and guidance to operational managers on how jobs can be structured as outside IR35 so as to attract the whole of the contractor talent pool.”
Many predict that – as has happened in the public sector – major private sector employers will relax their stances as they struggle to find the skills to innovate and remain competitive. “Over time, people got more comfortable with employing contractors and began to work within the risk,” says Chamberlain from IPSE. “When the business requires it, and they see their competitors taking a softer approach and getting ahead, they’ll feel like they should do the same.”
I have found it increasingly frustrating, as an employed person, to sit alongside a contractor who works the same systems as me, under the same constraints, using company computing, doing pretty much the same work and the same hours (roughly) but earns at a noticeably higher rate. He also pays significantly less into public purse – the benefits of which we all enjoy.
I concede that he (in this case) does not have the re-assurance of company sick pay or an employer pension contribution – but the notion of it being flexible is a mirage. He arrived to do a project for 3-4 months, but that was three years ago and he has worked continuously ever since. Every time (until now) an employed contract is discussed with him, he resists and (privately) has described the salary as “not being worth getting out of bed for”.
I sometimes find it hard to stay polite.
I welcome these changes.
Nobody is forcing you to stay in full-time employment. You could also take a risk and freelance.
I see what you’re saying, but has it never crossed your mind that instead of thinking of that as unfair, you could have considered it an option for yourself?
What’s stopping you converting to contracting yourself?
For what price would you be willing to give up your job security, training, holiday pay and pension contributions? You’ll also have to put some money aside in case you have a gap between contracts.
Don’t forget you’ll have to pay corporation tax, employ an accountant and obtain insurance.
Yes, contracting can be more tax efficient, but in doing so you take on extra risk and ultimately your financial security. The daily rate reflects this risk.
I recommend you sit down and work though the numbers.. And I wish HMRC world do the same!
If his position is so good, you have the same skills as him and you feel so much ENVY, why don’t you become a contractor yourself?
very true. some people want to moan because the worlds coming to an end and it,s all his fault. I come across these moaner’s every where i work.
Why don’t you the same? You jealous? Or just incompetent or insecure about your skills that prefer to be a permi?
If you are so frustrated who stopped you from becoming a contractor mate ?
Nothing stopping you from doing it. He, I, take unpaid leave, pay Corp tax and personal tax, have no protection from being asked to leave on short notice, pays for own learnings. Any downtime between contracts is unpaid.
No point in being rude. He’s taking risks you don’t want to. That does not make either he or yourself a bad person.
True also we do not get Holiday pay or suck pay. This will be one of those like PPI. We Contractors will be able to sue. We need a bunker when we out of a Contract.
We don’t sponge of our government. On top of that ,IR35. Britain will lose skill. We are mostly small businesses. LTD Complies. Why don’t they go for the BIG fish like Amazon/Google etc…
It’s in justise. Let’s just all get together and go on strike or help each other leave GB.
And for 3 years since what stops you from taking the option and go contracting? Why do think that having to no pension contributions, nor paid holidays, company sick pay, paid maternity/paternity leave, company flexi, etc is not enough trade off? Instead of hating, you should try it..
incorrect, by the time you deduct sick pay, pension, holiday pay, employee benefits, maternity / paternity leave, training, career development and then on the contractors side accountancy fees, time spent out of work between contracts, lack of job security, difficulty in obtaining a mortgage, legal fees, time spent reconciling receipts, public liability insurance, having to do any career development in your own time and at your own expense then actually the difference in rate is quite justified. Furthermore the flexibility offered by contractors has enabled companies to deliver projects that would otherwise be unviable with only permanent staff, not only because of the longer process to hire and the risks associated with getting stuck with bad employees, but also because it is generally the case the contractors are more motivated / “on the ball” in the workplace where as employees have a tendency to be complacent and can be awkward if they don’t like things. I think it will transpire that this greedy move by HMRC is actually very short cited and will result in a loss of talent and give other countries an opportunity to over take the UK as a leader in technology industries
Additionally contractors may have worked on many similar projects and bring a wealth of best practice or innovative ways of working gained through moving between companies and industries over years.
In my contractor life I’ve worked with too many Perms who have been in the same business, in the same team and often in the same role for years… this only gives one experience and way of thinking, to coin a phrase “because we’ve always done it like this”.
I personally see a huge shortage of talent in areas where the local population do not have skills required which then falls on contractors to travel great lengths. I’ve driven 86 miles to work as a contractor daily and there sacrificed family time and personal time to earn ‘that’s extra. I won’t be doing that for roles inside IR35 given that I will no longer be able to claim for the travel or overnight stays.
You have been sat next to exactly the type of people that IR35 is designed to trap, they are the reason why this legislation is being implemented. The problem for the likes of myself (a genuine self employed contractor who jumps between jobs at DIFFERENT companies) is that it seems that most companies will now consider all contracts as inside IR35. If that happens then I will be unfairly targeted for doing nothing other than stick to the rules! So, I do not welcome these changes, not at all.
I am in same position as you. The problem is HR had known about this many years ago but did nothing to stop it. So now the whole system is in a mess and greedy lawyers and politics are cashing in on our anxiety state.
He like all Contractors get no sick pay, pension, annual bouse, paternal leave, holiday pay, death in service, paternaty or maternity leave, company health insurance and has his working arrangements assured for about 6 months at a time. On top of that he pays public liability insurance, professional indemnity insurance.
Also he will no doubt be paying 20% VAT on all income 19% corporation tax on all profit as well as personal tax on money extracted from his company.
Yes he make more a day, but he can litterly be told on the Friday don’t come back on Monday.
If he can be told on Friday not to comeback on Monday then he doesn’t have “his working arrangements assured for about 6 months” does he. Any contract is only as long as the notice period despite have 3, or whatever months in the schedule. Yet another expense a good contract solicitor 🙂
And yet you have exactly the same option, to go out, take the risk of not being renewed, take the risk of no holiday pay, take the risk of having no pension contributions, and yet chose not to, and instead, sit there and complain that it’s not fair.
Yes, you’ve guessed it already. I am one of those contractors who sits next to you, doing the same job, forced to use the same systems that you do, yet would willingly use my own.
I’m happy to fork out for my own pension through my company whilst you expect to be provided for.
I’m happy to save for my own holidays through my company whilst you expect your employer to pay for your time off.
I’m happy to pay for my own training through my company whilst you expect your employer to train you.
I pay in to the public purse much more than you realise, and obviously much more than the government realise.
When I am forced to stop contracting because of this mindless jealousy and unfairness that you perceive, then I will not be collecting and paying the VAT to the government that I currently do. I will not be paying in the corporation tax that I currently do. The total annual amount of tax I will pay as a PAYE will probably equate to the same amount I pay quarterly in VAT alone.
I will not employ the services of an accountant as I currently do, like many other contractors, as we will have no need for our accounts to be done, so the accounting profession will be also be hit.
I will not be able to have a company car to carry out my 160 mile daily commute, so I’ll have to stop my car contract, so the car hire company will take a hit, not just from me, but from every other contractor who utilises a car hire.
I’m now restricted in the distance I can travel, as I can no longer claim travel or accomodation expenses, so the skills I can provide are limited to specific regions and areas. My previous willingness to work 200 miles (almost a 4 hour journey) away from home is now gone. Obviously my wife and family will be happy about this, having had to deprive them of my presence for months at a time whilst working away from home. Well, they’ll be happy until I can no longer afford to make the payments on my mortgage, as I’m no longer able to take home the pay that I used to.
I’m sure you will continue with your treacherous 15 minute journey into the office just as you have for the past 10 years or more though.
The reason that I have been renewed past the initial 3 – 4 months I was originally engaged for, is because I am more than competent in completing the tasks set for me to do. Unlike you, who can sit there moaning about how unjust everything is, and your employer has to listen to you, possibly having to take action on the things you say in fear of being brought to a tribunal, I have to just get on with the task I am engaged to do. I have no say in how ridiculous the actual proposition is, nor to be honest do I actually care. I will obviously provide my professional recommendations, whether or not they are listened to or actioned is entirely up to the company that engages my services. I will not take it personally and run off screaming to HR about how mistreated I feel. Im paid to do what the company engages me to do, and that is what I will do.
I to, on a daily basis find it hard to stay polite. Constantly having to repeat what I say over and over again, until finally the penny drops, and my advice is taken. Boom, it’s all working.
I do however manage to stay polite and professional, because that is what I am paid to do, and is part of the service I provide. I secretly sometimes envy the permanent staff who can speak ill freely of their “colleagues” in different teams, as at the end of the day, it’s all just office politics, but then I remember that “office politics” is one of the main reasons I started contracting. It was a way to completely avoid having to get involved in the small mindedness “tit for tat” back and forth the internal teams become embroiled in. The endless “they stitched us up, so we’ll keep the ticket to the last minute – then hand it over so it expires on them ” games. I now focus on making myself look good, by completing the tasks I’m engaged to do,and this is what keeps the contract being extended past the initial 3-4 months.
I’m also able to realise that, should the initial 3-4 month contract really be all that I am required for, then I’ve completed the tasks to the best of my ability. I can hopefully rely on a good reference for my company, and that there is the possibility of a future return, though obviously I don’t expect any guarantees on either of these.
If I were you, I’d fear these changes.
Your secure bubble that allows you to sit there moaning an whining about how unjust it all is, is about to be burst.
Your company now has the possibility of employing an ex contractor. Someone who has taken the risk of running thier own business, based purely on their skillset and previous recommendations. They no longer have to listen to you moaning about how unfair everything thing, and can now employ someone who can do your job much quicker, more efficiently, and much more accurately than you ever thought possible
Spot on. Great reply.
+1 from me 🙂
Sir. You want these changes because you’re colleague is earning more than you? He will be paying both dividend and corporation tax as well as probably VAT. The tax advantages are hugely overstated. If you think he earns too much then you should have became a contractor.
So as a contractor with a Limited Company
1 no sick pay
2 no holiday pay
3 personal tax
4 corporation tax
5 double national insurance
6 paying vat
7 No travel expenses
8 spending weekends doing the accounts
9 pay for all our training, the last training course I took was £4500 for a 4 day course!
to name but a few, if you welcome it that is your right but I would like to see you live like this.
The day rate we receive is not what we earn, we pay a salary out of that and now very small dividends which makes contracting really not beneficial like it use to be in the 1990s
So by implementing IR35 the Government gets less
Less Personal Tax
Less National Insurance
So well done whoever thought of IR35 as it just means at the end of the day less money for everyone.
Then there is the services that contractors use
and everything else!
So with all of this you expect a contractor to go PAYE but not get any of the benefits that are afforded to you.
Maybe if the Government actually got the correct taxes off the companies like Costa, Google etc they would not come after the people that are honest and pay their taxes.
Just a word to the wise, if all contractors decided to get perm jobs this would up the skill set massively and maybe your job may not be so safe in the next round of redundancies!
Be careful what you wish for!!
which is just the begining
so you may welcome the changes
Contractors have no sick days, no holiday and no protection of employment so are taking significant risk.
Their next job us not guaranteed so the higher take home was for the risk of such work.
They do pay a lot of tax and VAT so the government makes quite a bit of money off them already.
The situation you are describing is infrequent.
The fundamental question now is that if they are treated as employees, then they should get all employee perks as well.
In reply to ‘Sir’,
If you find it frustrating, why don’t you go out and become a contractor if you think they’re paid too much?
Could it be that risk / reward ratio is something that you cannot stomach? Contractors have short notice periods, will be first to let go if there’s budget cuts and do pay quite a lot of tax, more so than most (take corporate tax and VAT into account).
On to off that, contractors pay for their own training, take the time to study and ensure they have relevant skills for the market and rarely take time off for being sick (though lack of paid sick leave is a good motivation to soldier on and be productive).
If it such such a sweet deal being a contractor, everyone would be doing it. In reality it takes a lot of hard work and dedication to maintain a steady stream of contracts.
Then you are ignorant to the volume of cooperation tax and VAT amounts said contractor will have to pay each year – which will far out your annual wage.
You are a classic example of a large majority of “permies” who haven’t actually taken the time to research the contracting ecosystem. I was once one of those people until I looked into it and now live it.
I (choose to) take home the same as I did as a permie. And £ for £ I actually pay MORE in tax to HMRC and also collect VAT for them. So who is the one paying more tax?
What I get in return is that I can earn this in 9-10 months and take 2 months off between contracts. That is the flexibility I choose. You get 25? days paid holiday that you probably don’t have the ability to take in one chunk. You get a pension contribution, and sick pay, plus job security. We take all these risks and have to budget accordingly.
Notwithstanding the fact that the total cost to your employer is probably less for a contractor than the equivalent permie.
Contracting vs permie is a life choice that even you are entitled to make. It has nothing to do with cash. If you resent the “cash” part of it, and think you are good enoigh to make it, nobody is stopping you working this way too.
He is also not entitled to parental leave and is required to have indemnity insurance which might not cover all types of damages. While still paying taxes paying for rights he doesn’t receive. Probably receives no training the list goes on. If there is a cost cutting he will lose his job before you. In terms of social acceptable pay level I’m quite happy to see cash leaving corporations and re entering society. But perhaps also think about the CEOs pay.
You could have taken the risk and done the same yourself if the jealousy is burning that brightly.
Why dont you contract then? Or are the benefits of a permanent position greater than the risk of contracting?
You could opt to become a Contractor too and have no pension contribution, no sick pay and the massive risk of not being able to get another contract after your current one finishes. It sometimes takes me up to 3 months!
Yes there are some people taking the mick like him, but we’re not all taking the mick.
So, although this means that people like him get their comeuppance, it also means that 100,000s of genuine contractors will suffer.
Maybe you should ask your chain of management why they have retained the contractor for 3 years than blaming the contractor !! Also you need to ask yourself why you continued to work on a low salary – contracting market is open to all in this free country – if you were that bothered you should have joined them and become a contractor yourself …
The guy took a risk and was rewarded.
What a pity that such a narrow mind view is still held in this day and age.
The person sat next to you reapplies for his job every 3 months and will be judged on his or her performance.
Do you have the same obligation?
You are objecting to someone doing something you will not do.
What’s stopping you mate! If the grass is greener then it’s a free world right!!
But you don’t want to take the risk as then it comes down to individuals performance! but you want the safety net of your perm job!
Typical losers mentality – If I don’t get the higher rate I will complain!!
If you are so envious of his higher salary go contracting.
I have heard similar comments to yours over the years and I find it frustrating. Contractors get the work due to the lack of locally available skills. Would you work away from home, responsible for all your expenses. I am £200 per week down in expenses before I start. Have you ever had time off due to illness that you are not paid for? This is why contractors can command a higher rate.. your grievance should be with your employer rather than the contractor
Was the contractor paid to learn the same systems by the company?
Some of the benefits from the public purse are denied to the contractor
They also lack the “reassurance” of
skills development through promotion
employment expenses for travel/accommodation (in future)
maternity/paternity cover etc
redundancy, as you suggest he is in your opinion.
Maybe they are retained because they are doing the job well
Maybe he understands his worth and is needed by the business at the moment
Not accepting an permanent offer is not his fault
The company could recruit a permanent replacement if it chose to
A long contract does not deserve your jealousy. It should comfort you that your skills are also needed by the company and the contractor would be cut first.
You are not taking into consideration the contractor has to cover their sickness, holidays, breaks between contracts, accountancy, insurance, training, etc
I finished with a finacial institution end of Sep, with Private sector IR35, Brexit and the end of year, it could be Feb before I get another job.
P.s.. and employer pension contributions
just a word guys works pensions get deducted from state pension if you are over state pension age.
Sir you are missing a bigger picture here, because of envy and luck of understanding.
First contractor do not have pay sick leave, and they do not have vacation. Tomorrow, if client does not need them they will be discharged and they get nothing. If you get discharged you get severance pay, huge lump of money for nothing. You have retirement plan they don’t they gambling with their future. You get pay when you are on vacation, contractors lose money when they on vacation.
Now, what you also see let say you earn 50K and contractor next to you 100K. It is not true they do not pay taxes they in fact pay more taxes than you simply if we consider that you pay 50% of taxes and contractors 40% of taxes (VAT 20%, corporation tax 22.5%, dividend tax … etc.). So in your case 50% of 50K is 25K to the HMRC bucket, and 40% of 100K 40K to HMRC, bucket. If you take real numbers you will see that difference is smaller.
Now think, who is benefiting more to taxes one who pays 40K of taxes or one who pays 25K?
Why are contractors important, simply said they are the one who are pushing economy, not rich people, and I will write a blog post about all this soon …
That being said this entire thing will just put more people to poor class, as Banks and others will use this as opportunity to reduce cost on account of ever thinning middle class. No, they will not increase everyone salaries, with Brexit going on, this is a good opportunity for brain drain. Anyhow… who needs skillful and smart people in this country … :/
Have you thought about asking for a pay rise?
Try to say ‘good luck’ to those getting more than you rather than being jealous and bitter.
There are significant costs and risks to working freelance. These are not often reported on.
As for contributions to the public purse, each year when I was freelance my company paid more in corporation tax than Amazon.
Arguably my company used far less public resources than Amazon.
Would seem there are simpler, less divisive ways for HMRC to raise £1 billion per year.
You’ll have the last laugh. The odds are that he has no pension to speak of.
Sir – The problem you experience is not due to contractor vs perm, it’s due to the fact that loyalty to the company does not pay, you would earn more if you moved from job to job as you would get paid the real market rate for your skills.
Why not take a step back, not seeing this as an ‘us and them’. The situation has arisen as a result of current legislation and the decisions businesses/government have been making. Businesses want a flexible workforce which is promoted by a Tory Government. The Government are now complaining they are not getting the revenue. Well you can’t have it both ways?
I would suggest your employer would welcome the opportunity to reduce permanent numbers in favour of contract positions. Less risk to the business, hire an fire at will, compliant workforce etc.
I’m a professional in a contractor role by accident. I was made redundant from a permanent role and could only find contract work in the short term. It was not my original decision to go contracting. Although, now I see that I would not choose a permanent role. Why – because I’m not involved in the day to day company BS such as appraisals; the reward never matching the your effort.
I come in to the office, do a good days work and get paid for it and go home. I’ve been doing it for 5 years. I don’t get any benefits of full time which is fine by me.
Once the Client understand your capability and the benefit you deliver they don’t want to let you go.
The downfall of it is, I’m by no means invested (no interest) in the Company/Client. It’s the ‘your only a number’ turned on its head.
– Don’t pay me I don’t turn up.
– I will go to whoever pays the most.
– I don’t care, show me the rate.
– If it doesn’t suit me I not doing it.
I work as a contractor through my own limited company. For years I have paid myself a good salary comparable with my permanent colleagues. The additional money received, as a consequence of my hourly rate is invested in holiday, sickness and pension contributions.
Some may say (including my accountant) that I pay too much tax but I am willing to pay my fair share.
To be honest I think the contracting community have them selves to blame for the new 2020 IR35 rules. We should all pay some tax to the treasury which the contracting community has failed to do over many years.
I’m all for a contractor lifestyle since employers treat permanent employees with the same age old management styles which for some is unacceptable. There is barely any focus on learning, training and flexible working. Limited holidays esp for those with health issues makes permanent employment a ridiculous proposition for some esp the more senior IT professionals. Appraisals are completely moronic and provide little justification for any pay raise. Leave for sickness is treated with disdain and is used as a measure of performance.. Old old management styles..
I’m completely opposed to these changes and its very stubborn and dictatorial of HMRC to enforce a lifestyle for those who prefer a flexible way of working… It’s basically saying that u have to work to as per the current ways of the industry with little room for independent innovation and growth.. Absolutely ridiculous!!
You shouldn’t blame the chap. Its suited the company you both work for too. As for him paying considerably less into the public purse that is a mirage too. Without out knowing what either of you get paid he is an example below of what someone PAYE pays in tax and what someone self-employed pays.
PAYE Salary £60,000
Pays £5,000 NI and £11,500 personal tax
Self-employed earning £50 per hr
Pays £8,000 personal tax and £13,000 corporation tax.
These all go into the same pot, so HMRC receive £4,500 more tax from the chap sat next to you. If you employer decides they don’t need his services anymore then they simply ask him to go. No dramas, not redundancy.
I really, really doubt that he pays less into the public purse than a full time employee.
as a contract test manager earning in the region of £500 / day my tax contributions to the pubic purse over the last four or five years have been 48k, 35k, 46k, 56k and 33k
Jobserve right now has a number of perm test manager jobs at around 50k.
Go do the math.
You should have become a contractor then and taken the risk yourself if it upset you that much.
Having worked on both sides of the fence I find comments such as above particularly dull and way off the mark.
Permies do not realise how much they cost a company and never factor these benefits in. Things like less productivity (training, endless meetings, reviews 1-2-1s etc), cost of HR, no need to pays for accounts, keeping up to date with HMRC,benefits, insurance, pensions, sick and holiday pay etc all significantly add up.
At the end of the day you have to ask yourself why you’re not a contractor… there is always reasons which do not necessarily have a monetary value that make a permie job better which is why you’re not doing it.
Oh and the tax thing…. the marginal rate is slightly better but I pay more tax per year than my previous gross permie salary. Which is better for the economy?
Why does that bother you, when you could also do contracting work? I dont understand whats stopping you from doing the same? Or maybe its because you realise there are a few more risk factors, which you have not bothered to mention, which you are not prepared to take on. Risk vs reward stop complaining.
Oh dear god. The level of retardness is too high. Read:
1. No sick days
2. No employment guarantees, no notice period.
3. 0 training provided by company
4. No pension
5. No career progression
6. Expenses for running the company
7. 0 company benefits
8. Need to constantly upskill and on the lookout for job
9. Unfavourable mortgage conditions etc etc
10. 0 say in influencing company direction
You do the math. More risk more reward. Please don’t compare perm and contract. It is very very different. As a perm, if you are good, one day you can dream of being a c-suite officer and as a mid-senior level manager you will break even with contractors. Every increase after that you will excel in earnings. If you are mediocre, that’s where you will remain throughout your life regardless of which job you undertake.
PS: I am a perm
Assuming you aren’t there yet, when you do I want to work for you. Whether that’s as a contractor or perm remains to be seen.
16th October 3.51? Did you send that comment in works time?
I have to disagree to the comments made by Sir. Contracting is about flexibility and freedom to achieve your own personal goals rather than corporate goals. When contracting, the contract will outline set objectives I need to complete/meet, once complete i either a) sit back and look for them next assignment whether it be with the same or different company or b) work on a different assignment maximising my income.
When contracting you are not governed by set working hours, i can leave at any point during the working day whether it to see another client or see one of my children perform in a school activity. You are your own boss and not under the constraints of an employer, there are no politics, you are a free man earning your own living; aiming to reach your own goals. I have experienced end clients wanting to control contractors like employees, but when this has happened to myself i remind them of the contract and no more has been said; i do what i want when i want. If i wanted to be controlled i would become an employee long before now.
Yes the income is higher but it is down to the high risk of being out of work, to cover days off sick, pension contributions and the running costs of a business along with insurances etc. When you take this into effect a contractor is marginally better off. Would you be willing to take an extra £1k pay without job security or sick pay? I personally see employed people as robots, people who like to be governed and go with the flow whether it be right or wrong. They tend to have corporate goals rather than personal, but that is their choice.
Just to remind you a contractor will pay VAT on turnover, then corporation tax on profits, then income tax and dividend tax on takings. You only need to do the maths to work out its not that different.
What stops you from becoming a contractor? Like it or not contractors get paid more because they take on the risk of being taken off projects are their contact being cancelled at any time. If he were not performing then he’d be let go…he’s paid more because he’s delivery what’s expected and the client is satisfied. If budgets become an issue then he’d be dropped and you’d be “safe” or receive a redundancy I assume.
The banks decision is specific to their market sector. Contractors add vat to their invoices which banks cannot reclaim, moving contractors to PAYE even with a pay increase , and the additional employment costs incurred is offset by no longer needing to pay vat.
For most other employers they can reclaim the vat so moving a contractor to PAYE costs them more in additional employment costs.
(For the previous comment about pay don’t forget a contractor has to pay there own employers NI and well as employee NI, own pension contributions, and has no employment rights or sick pay that you enjoy)
This policy is about hmrc going after easy pickings targeting individuals and small companies rather than big businesses and multi nationals with billions in turnover but that pay little or no tax at all.
Typical response from an employed staff member, remember as a contractor when we don’t work we don’t get paid, in addition we have no benefits, job security or receive a bonus, not to mention should we need training we have to pay for this out of our own pockets, where as as employed the company pays for this. If you did the maths before throwing your comments online, you would see the variance between the two are minimal. So I would suggest getting your facts straight. We provide flexibility to business and take on a lot more risk. When we get the boot there is no redundancy pay so have a think about all these issues.
I find it hard to remain polite when faced with permies thinking they hold the moral highground.
You don’t pay more tax. you get more taken directly from your pay packet on payday, but can we be clear you dont pay more tax.
That said, given that you have, as you say, the skills to match this guy, you could quite easily go contracting and contribute much, much more to the public purse.
Given you have the skills to do this, why do you choose not to?
You, through a desire for security, for living in your own home, for seeing your family, for a pension, for medical, for holiday time, have chosen not to do this.
Its time to give up the moral highground. You have no place there knowing that you could be putting significantly more into the public purse, but for your own selfish reasons, choose not to.
I work in the oil and gas industry, have done for years.
Contracts are sometimes year to year, if I’m lucky I’ll get 2, maybe 3.
Sometimes different clients, sometimes the same, but always with no guarantee of continued work. If there’s nothing on the following year, I’m out of the door.
IR35 will wreck my industry. It is ill-conceived and cannot work.
It must be repealed.
I am a contractor and have been for almost ten years for now. Am I disappointed by the new IR35 rules that come into play in April – yes, of course I am. Will I have less money – yes, of course I will. But, I think we need to see the positives rather than the negatives here. For me, the positives are I’ve earned and saved more money that I could have possibly imagined – and it’s probably the same for every other contractor on here. if we all have to be PAYE we will still earn more than if we were a permanent members of staff – albeit, without the holiday, sick and pensions etc. My day rate is around 400/450 per day so even when I’m on PAYE I’ll still be better off that if I took some permanent job – infact I’ll be earning a lot more.
My suggestion, change the way you think and you’ll change the way you feel. Change is coming and it’s time to STOP moaning and get on with it!
You presume to know everyones situation is the same as yours, do you work for HMRC by any chance ?
As an ex-permie and some who employed contractors, it was easy to get rid of them, but impossible to fire permanent staff. I needed contractors to run my projects as my bank (yes to make it worse I am an exbanker as well) didn’t have enough staff to do so from many years of cuts and reductions.
My project funding had to cover resources and the only way was to get contractors (Ioriginally i was given teams from the big consultancies, but they consumed the budget before delivery. The teams from them consisted of a bunch of inexperienced grads, who whilst very bright had zero experience).
All my contractors new the roles would cease with delivery, and in some cases I would switch them over to other projects of mine. But the roles were never open ended, in some instances I would recruit a contractor for a perm position, but that was always a stop gap whilst the long winded process of permanent recruitment took place.
Even though I am contracting now, I dont agree with permanent roles being filled by contractors, but that’s the employers fault, they should be looking at recruitment for the roles.
Its going to be interesting how the banks successfully run projects, when currently most of their project team scare contractors. With the good contractors not prepared to take the financial hit of paye and them just being left with the rest. When projects start going wrong, or get delayed, or there are not enough skilled professionals to deliver effectively, their blanket approach may come back to bite them
I know I’m fairly minority within contractor community. But, my current work visa only allows me to engage with clients through my limited company, i.e. I have entrepreneurship work visa. If all companies in the market perceives the IR35 law like the big banks do, and doesn’t allow us to explain why we are outside IR35, then there won’t be any roles for me (and other 30K people also having the same visa like me). I am seeking advice from immigration solicitors, and accountants; but really not sure if I can continue staying in UK without being able to secure any outside IR35 contract anymore. Funny enough, I have Big Data Analysis post grad degree, which should be quite a unique skill to secure contracts with companies. But, seeing the replies from those, and having chats with recruitment agents, it seems like whole contractor market is afraid of engaging anyone through a LTD company anymore.
Just wanted to let you know, there are people like me, who are obliged to be a contractor, not eligible for any public funds (as it is stated in our visas) and paying quite a lot tax as all of our documents are reviewed each time we apply for visa extension (including bank accounts and all). But still, we are getting hit by this law without having a chance to defend ourselves.
I think we all need to stick together and get this IR35 binned. After 3 years of contracting and stressing whether we can feed our children in between contracts is becoming somewhat tiring. We finally brought our house after year’s of saving we are now stressing whether we will lose our house after yet another contract comes to an end due to outsourcing. With this IR35 is killing many industries. The economy is suffering and with so much uncertainty over the whole Brexit debacle yet many large companies are pumping into other economies – it is just farcical. Something needs to be done.
I welcome Govt’s proposals. Agree it is a choice. Isnt this true that IT contractors have long been taking benefits of UKs Taxation rules (nowhere in the world does this exist) that was primarily designed for plumbers and builders whose jobs change on a day to day basis – not for the population who works as a permanent employee continuously for 3 years in a project but still take the tax benefits as a contractor. All these things about pensions/ holidays – the plumbers and builders do not get them either!!
I read the above chain with interest and agree with most of the contractor world regarding the additional costs and the tax that they have to pay which is part of the reason they demand a higher price but i do have to say the mention of VAT in every posting above is a red herring. There is no collection of VAT by the contractor, they are simply a middle man in the VAT world as most businesses are. A contractor is paid the VAT by your client and pays it over to HMRC, there is no payment of VAT and in fact the contractor is able to offset the input VAT on expenses or indeed use Flat Rate VAT calculations to win, a small amount, from the arrangement.
I think you miss the point, the VAT is still collected by HMRC so its more tax to the government.
The whole basis for the argument is that we don’t pay enough tax or are dodging it. do you want to know a little simple calculation. If i take a perm job at 80000 a year which is a decent salary in London for a developer, I will pay 24,500 in tax and that’s it. I currently pay 13500 in corp tax, I pass over 18000 a year in vat (not mine i admit). and I pay a company for accountancy fees, a pension company, an insurance company and spend a bit of cash for company purchases. I would think as an accountant, you can now figure out the lunacy of the IR35 argument. I will no longer need an accountant, gone, Pension, frozen no longer required, no more corp tax, no more VAT, and the company that now employees me can write off 19% corp tax of the amount it pays me.
All for 24,500 in personal income taxes. but yeah it’s a great idea.
The realistic thing that is happening is that companies don’t want to take the risk so remove everyone who is a freelancer, we only have to see the banks have made all freelancers go perm and a lot are following.
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