Osborne Targeting Contractors? Again?

[LF1]

http://www.dailymail.co.uk/news/article-3307960/Osborne-close-tax-loophole-staff-paid-books-follows-furore-BBC-stars.html

I know it's the Daily Mail but the Guardian is on it too.

http://www.accountingweb.co.uk/article/ministers-discuss-400m-ir35-crackdown/592661

"Reports suggest that anyone using a PSC who works for an organisation for more than one month will be considered an employee and would be obliged to move on to the payroll"

[Bibs]

So, contractors could have 12 jobs a year! Nice to see the admin load on companies being relieved!

Employers will have to pay sick, holiday, give rights to contractors? Never gonna happen! 

[andydclements]

I like the idea of stopping those who simply work for one company for a long time but work as self-employed to be able to justify expenditure as tax deductable/ company expenditure rather than how a regular employee would have to fund it from post-tax income. But, just because that's what he wants to catch but, doesn't mean it will drive the correct behaviour. As Bibs indicates it could mean that people just move about more and so raise costs. 

Specific legislation was introduced to combat this in the construction industry, I don't know how effective that was.

[LF1]

IR35 already covers that.

[Barrykearley]

And the bloody cis scheme which forces deductions.

more red tape for the small guy again..........

[C8RKH]

Hmmm, well, after having spent many years seeing IT contractors quite frankly taking the piss and bragging about their lifestyles and wealth - oh, yes, some of them do that and do like to rub permie employees faces in it - I can say on one hand that I don't have an awful lot of sympathy.

However, to balance that, as a permie you do usually get additional "perks" like pension, sick pay, holidays etc. so it isn't all one sided and being a permie has it's benefits.

I guess the real issue is when does a "contractor" in fact become a permanent employee?  To make my point, I worked for an employer for 5 years as a permie and we had some IT contractors who had been there for 8-10 years. Both sides were happy - the contractor was making cash hand over fist and limiting his tax bill as much as possible, and the employer was not having to pay NIC's, holiday pay, sick pay, training costs etc. and so also saving money without the risk of future redundancy payments to boot. The nett loser was the Government on both sides.

So, do I think it is right to target contractors - Yes, actually I do and the old adage of you're earning it so you can  afford to pay (the tax) it rings true. However, if you want to actually take the risk of setting up and running a real business, with a product, sales, R&D, and other investments then fine, but that's a whole different ball game to the current (IT) contractor market.

I know, other sectors use contractors, and there the situation may be different. But it's hard to justify the "benefits" of selling your labour as a contractor to someone who get's battered for tax left right and centre in a PAYE environment.

[Barrykearley]

Yes - but if I work on a contract that's 6-8 weeks - what the hell is at going to do??

im self employed - and want to stay that way! Tax returns done at the end of the year. What more do they want? Blood??

ahh - edit - read it properly - Psc - what's that all about - another scam

[LF1]

The tax benefits are not what they used to be. In my situation I run a small company and rather than employ I use a few people as contractors, other than myself and my wife I do not employ anyone. I think you are maybe looking at this from only one angle.

If this goes through it would be a killer as I would either have to employ these people and therefore have the responsibility to have work for full time employees all the time or go back to just taking on work that I can cover myself, however this would likely mean I work on a project for over a month at a time, does this mean anyone wanting to use my services would have to employ me for that time?

[C8RKH]

I understand Barry which is why I focused on the IT contractor market where the contracts tend to be much much longer - usually a minimum of 6 months and as I pointed out can run on for years....

However, I'm PAYE and I HAVE to do a full tax return too every years and yes, the do bloody well want blood as they extract pounds of it from me through my tax return and as a Permie there is very very little of my expenses or other stuff I can offset against the tax demands.

3 minutes ago, T3Jn said:

The tax benefits are not what they used to be. In my situation I run a small company and rather than employ I use a few people as contractors, other than myself and my wife I do not employ anyone. I think you are maybe looking at this from only one angle.

If this goes through it would be a killer as I would either have to employ these people and therefore have the responsibility to have work for full time employees all the time or go back to just taking on work that I can cover myself, however this would likely mean I work on a project for over a month at a time, does this mean anyone wanting to use my services would have to employ me for that time?

I think I covered that when I said when does a contractor become a permie and also linked to "consultants" whose assignments would usually be shorter. I did specifically point out that I was referring to the IT contractor market, which is a part of the overall Contract Market which could include skilled trades, JCB drivers, architects, Engineers etc.  I think a broad brush approach is not correct, but I also think the way some contractors (again, looking at IT) can abuse it means something needs to be done.

[Barrykearley]

Can't the government just simplify stuff. This is going to wrap it up in red tape.

yes employers like to shirk long term responsibility with contracts - it suits the individual as well more often than not. Public sector folks are forever having to reapply for jobs - so that seems mad as well. 

The trouble is - we all have too many rights - which often conflict with others. It costs more, sticks up barriers to growth, kills small businesses and just makes life too damn hard.

the tax system is a joke - lets think Starbucks et al !!

[LF1]

IR35 already covers long term IT contracting issues you mention. Not all IT contractors are as you describe.

Personally I think the whole "cash in hand, save you the VAT sir" tax dodging should be targeted, maybe make it an offence to hand over payment as cash so that people are discouraged. Every company or tradesman that I have dealt with over the last 7 years of trying to renovate and maintain our house (and there have been too many to count) have wanted to do some or all work cash in hand with only one exception.

I always answer, yes if you can knock off the VAT and also half personal/corporation tax you won't be paying on it - they soon shut up. Out of principle I always insist on a full invoice with a VAT number and pay by bank transfer.

[Bibs]

Vive la revolution! 

http://www.independent.co.uk/news/uk/crickhowell-welsh-town-moves-offshore-to-avoid-tax-on-local-business-a6728971.html

[100th_Idiot]

Excellent. I'll have to watch that.

[C8RKH]

1 hour ago, T3Jn said:

IR35 already covers long term IT contracting issues you mention. Not all IT contractors are as you describe.

Personally I think the whole "cash in hand, save you the VAT sir" tax dodging should be targeted, maybe make it an offence to hand over payment as cash so that people are discouraged. Every company or tradesman that I have dealt with over the last 7 years of trying to renovate and maintain our house (and there have been too many to count) have wanted to do some or all work cash in hand with only one exception.

I always answer, yes if you can knock off the VAT and also half personal/corporation tax you won't be paying on it - they soon shut up. Out of principle I always insist on a full invoice with a VAT number and pay by bank transfer.

As I said Tom - " oh, yes, some of them do that" and where there are always Gods there are usually quite a few devils too. Yes, the old "cash jobs" are good for getting stuff done on the cheap, not so good when the job goes wrong and you need it fixing.

Where slowly moving away from a "cash" economy and over time, the "cash in hand" job will disappear as we move to electronic payments for everything - but it will take time.  

I do find it strange the Government is targeting contractors on one hand, defending zero hours contracts on another - as it shows that what Business seems to be saying it wants is flexibility to hire and fire in the short term. Counter that with the Unions and Public Sector who want jobs for life (just look at the "no redundancy stance and culture" here in Socialist Scotland!) and then add in the complexities of our tax system (I fully agree with you here Barry) and we have a recipe for collusion, deceipt, evasion and anything else we can think off.

Yes it all needs to be made much simpler, but in some ways it also needs to be a level playing field as some fortunate guy who is employed and earns say £130k a year (a bloody good whack) is effectively taxed at circa 41-43% on the whole amount (£56k) - don't forget that at this level their right to earn the first £10k or so tax free is eroded by every pound they earn over £100k so this increases their effective tax rate quite quickly.  Granted they do benefit from 40% tas relief on pension contributions but that will be stopped most likely in the next budget too.

Whilst a contractor can still "earn" £130k in revenue, then pay their wife a salary (if she does not work elsewhere) at no / basic rate tax through the company, pay themselves a lower salary, offset expenses and deductions and then pay a "top-up" as a Dividend at a lower tax rate - effective tax rate on the same £130k probably around 20-23% or £26- £30k so a whopping £26-30k nett benefit. Again, the rates etc very much depend on the contractor and the type of work and the sector etc etc etc. and not all are the same. But the general jist is it is still advantageous financially for many contractors, which is why they do it. Others, prefer the lifestyle option of working when they want for who they want etc.

At the end of the day though we all have the choice, to some extent, to choose a permanent role or a contractor role, and every one of us will try to maximise the personal advantage of the role we choose. That's just human nature.

[LF1]

The paying the wife thing where she does not actually do anything is a massive red flag to HMRC.

When I say I employ my wife, she goes to clients 5 days a week and works harder than me an bills by the hour.

When you break down the contractor taxation all you save if you do it per the rules is NI, about 10%. This does not cover pensions, holidays and the absolute killer of sickness.

Putting everything down as an expense is a myth too. Most likely a BS contractor trying to impress, it has to be solely and wholly used by the company. Travel expenses are the handy one but they are limited. 

It used to be a lot different but over the past few years it has been slowly whittled down, with the killer blow last budget. 

[C8RKH]

Well that's a bugger Tom as I was thinking of going down this route and have over the past couple of days written 3 new consulting proposals for companies I could contract to!  

By the way, I did not mean to imply your wife was being paid in "name only", i.e. not working for it!  My wife currently does not work, if I went down this route she would run the office for me, and it would not be easy as book-keeping, reception, paper work, proposal writing, report proofing etc. However, I would be able to pay her for all of this, and as she currently does not work, it would be very tax efficient for ME to do that as I pay tax currently at 45%, and she will pay tax at what, 20% for earnings between around £11k and £40k.

I appreciate it is not as good as it used to be but you see very few "contractors", especially in IT, who are ever short/struggling - unless of course they are totally shit at what they do, which happens. Again, not saying it is the same in every sector, maybe I am just jaded by IT contractors.