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Contractors No More ?

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Got a random email from IPSE and then decided to have a look at the UK contractor forum.

Appears a late note on some treasury doc about the forthcoming autumn budget - will potentially include some nuts sounding change - that will mean any independent company doing work for more than one month on a client site will immediately become an employee of said client ?!

http://forums.contractoruk.com/general/110158-crackdown-personal-service-companies-could-raise-400m-tax-31.html

Thoughts ?

No doubt the usual excessive 'leak' to be followed up by something that sounds better. I can't imagine how they would do this ? Big business loves the flexibility. I can't imagine Osborne's pals in the city are going to be too chuffed if this were to go through.

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I think the way contracting through a limited company works is a bit of a rort. Especially when your hourly premium is also high. It doesn't mean you will be employed by the company but does mean you'd be paying full NI contributions and income tax. With a free dividend allowance now at 5k, contractors effectively have a tax free income of 15k where they pay a small salary and receive the rest of their income as dividends.

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Even agency workers in education, medicine or warehousing might be affected. Sounds, on the surface, unworkable.

Unless it's an independent one man band company.

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I was under the impression these changes were more about one man LTD company's and the tax issues that go with it will be PAYE or nothing ?

There`s a few very dodgie looking tax scams/avoidance schemes being used at this moment in time

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I think the way contracting through a limited company works is a bit of a rort. Especially when your hourly premium is also high. It doesn't mean you will be employed by the company but does mean you'd be paying full NI contributions and income tax. With a free dividend allowance now at 5k, contractors effectively have a tax free income of 15k where they pay a small salary and receive the rest of their income as dividends.

Of course - there is a difference. But that's because of the negative sides to being 'your own company'.

End of the day - if it was simply better full stop - every single person would do it in certain industries - they do not.

As for the dividend you note above - that's actually making things less attractive for contractors.

As for the treasury chat - the jist of it seems to be that it's not fair to have 2 people doing 'the same job' and getting taxed differently .

That doesn't make sense when their working benefits are also completely different.

It's just 2 different ways of working.

This has been going on for years - IR35 and all. It's just impossible to state what's a 'real' company or not. Well as far as the taxman is concerned.

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Pretty much the death of contracting. I recently made the decision to go permanent and cease independent consulting through my Ltd company anyway.

No-one will want to contract, especially if client companies taking them on temporarily only pay them similarly to permanent staff.

This will be devastating for businesses who use contractors for flexibility and ability to react to changing business demands and circumstances. They will be unable to find enough skilled people for busy periods and be stuck with excess staff in quiet periods.

It is always telling that people in secure jobs moan that contractors are well paid and somehow avoid tax, yet never want to take the plunge and have the 'easy life' themselves. Because under all the bluster they instinctively know that running a business involves a lot more. A lot more risk, a lot more liability, a lot more administration.

Now only large companies will supply contractors, and their clients will really pay through the nose. Expect jobs to be lost to offshore companies.

When a government stops people from earning a living, through ill-informed knee-jerk reactions and jealousy, you know the country is f***ed.

And if any business thinks I will provide skills at my level on some sort of zero-hour contract, they can f*** off.

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Even agency workers in education, medicine or warehousing might be affected. Sounds, on the surface, unworkable.

Unless it's an independent one man band company.

Yep - in the most simple terms - I think the only way the treasury could actually make this workable - is to state a Ltd company cannot exist unless there are are least 2 directors / employees.

But even with that - you could just as another person as a director (your dad for example) and they draw no dividends.

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I was under the impression these changes were more about one man LTD company's and the tax issues that go with it will be PAYE or nothing ?

There`s a few very dodgie looking tax scams/avoidance schemes being used at this moment in time

Always are. But 99% of contractors as far as I see - pay themselves fully within the law.

You are either a Ltd company providing a service - or you are not. The treasury appears intent on making this definition as grey as possible.

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Pretty much the death of contracting. I recently made the decision to go permanent and cease independent consulting through my Ltd company anyway.

No-one will want to contract, especially if client companies taking them on temporarily only pay them similarly to permanent staff.

This will be devastating for businesses who use contractors for flexibility and ability to react to changing business demands and circumstances. They will be unable to find enough skilled people for busy periods and be stuck with excess staff in quiet periods.

It is always telling that people in secure jobs moan that contractors are well paid and somehow avoid tax, yet never want to take the plunge and have the 'easy life' themselves. Because under all the bluster they instinctively know that running a business involves a lot more. A lot more risk, a lot more liability, a lot more administration.

Now only large companies will supply contractors, and their clients will really pay through the nose. Expect jobs to be lost to offshore companies.

When a government stops people from earning a living, through ill-informed knee-jerk reactions and jealousy, you know the country is f***ed.

And if any business thinks I will provide skills at my level on some sort of zero-hour contract, they can f*** off.

Unless you consulted as an employee of an umbrella organisation, a sort of passive consultancy structure.

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Pretty much the death of contracting. I recently made the decision to go permanent and cease independent consulting through my Ltd company anyway.

No-one will want to contract, especially if client companies taking them on temporarily only pay them similarly to permanent staff.

This will be devastating for businesses who use contractors for flexibility and ability to react to changing business demands and circumstances. They will be unable to find enough skilled people for busy periods and be stuck with excess staff in quiet periods.

It is always telling that people in secure jobs moan that contractors are well paid and somehow avoid tax, yet never want to take the plunge and have the 'easy life' themselves. Because under all the bluster they instinctively know that running a business involves a lot more. A lot more risk, a lot more liability, a lot more administration.

Now only large companies will supply contractors, and their clients will really pay through the nose. Expect jobs to be lost to offshore companies.

When a government stops people from earning a living, through ill-informed knee-jerk reactions and jealousy, you know the country is f***ed.

And if any business thinks I will provide skills at my level on some sort of zero-hour contract, they can f*** off.

Yep - the only problem companies using contractors have is how much their daily rates are - everything else they love !!

Hence why I reckon this gets discussed with the CBI/ banks etc.. and they clearly tell Osborne - no chance.

I have always paid myself a reasonable salary and the rest in dividends. And never taken the piss with expenses.

Now ? ****** it - within the law I will pay as little tax as possible. Why shouldn't I.

Doubt it will go through though. Fear factor leading to something else that's not quite as shit.

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Always are. But 99% of contractors as far as I see - pay themselves fully within the law.

You are either a Ltd company providing a service - or you are not. The treasury appears intent on making this definition as grey as possible.

I was offered to work through a scheme via an agency that was LTDco based from what i can make out the LTDco was set up with multiple directors each one getting paid NMW /PAYE with the rest paid as a loan then I think the company is wound up at the end of each tax year

Sound like flying to close to the wind for my liking but i`m no tax expert so who knows

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Heres a few points why contracting is hardly worth the candle nowadays:-

Clients take you on for the skills you already have- they dont train you at their expense, though any good employer will ensure there is professional development for their permanent staff. So there is not the same career progression a permanent worker enjoys.

So the only training contractors get is at their own expense and in their own time - without pay. And because the training is not for a contract being worked on, the expense of training is not even tax-deductable.

Paid holidays - forget them if you are a contractor.

Time between contracts. This seems to be get longer and longer. Clients faff around deciding on the job description, etc, and so there are long periods between paid contracts. And yet looking for contracts is essentially a sales exercise for the contractor - it's still work, but unpaid.

Employers NI. A contractor not only pays income tax and employees NI, the contractors Ltd company also pays employers NI.

Liability insurance, accountant's fees, advertising, pensions, disbursments, etc.

As a contractor changes jobs regularly, it is difficult to live close to work - you might be working anywhere. So, high travel costs, plus possibly paying for accomodation away from home. And often paid out of after-tax income, depending on circumstances.

Contracting rates have also been squeezed. Maybe the few who stick with it may be able to command higher salaries if there are fewer contractors.

The irony is that 'permies' who support a 'crackdown' on contractors will see contracting being farmed out to large Indian ofshore companies, who will undercut rates so much the permanent jobs may be threatened. And offshoring will reduce the tax take for HMRC.

Moral: If you try to kill an industry through taxation, you kill an industry which then pays no taxes.

Edited by happy_renting

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I was offered to work through a scheme via an agency that was LTDco based from what i can make out the LTDco was set up with multiple directors each one getting paid NMW /PAYE with the rest paid as a loan then I think the company is wound up at the end of each tax year

Sound like flying to close to the wind for my liking but i`m no tax expert so who knows

Sounds like the ebt things used by many a football team.

Think recent tax cases have made them more 'evasion' rather than 'avoidance' now ?

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Unless you consulted as an employee of an umbrella organisation, a sort of passive consultancy structure.

They introduce restricitions and overheads themselves, and HMRC has always been uncooperative in explaining upfront about what they consider legitimate.. So using an umbrella company means being at risk of a draconian retrospective tax assessment.

One of the big problems with IR35 is that HMRC would never tell you if a contract was caught by IR35 until you sign the contract.

If there is one thing HMRC drones hate and envy, it is anyone with a bit of enterprise.

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I was offered to work through a scheme via an agency that was LTDco based from what i can make out the LTDco was set up with multiple directors each one getting paid NMW /PAYE with the rest paid as a loan then I think the company is wound up at the end of each tax year

Sound like flying to close to the wind for my liking but i`m no tax expert so who knows

Yes, I was offered such a scheme, but I thought it too risky. HMRC are likely to treat it as evasion.

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Interesting seeing that self employed/Ltd Company/non PAYE contracting was so encouraged during Conservative Thatcher's time and now seems to be discouraged during Conservative Cameron's time.

It's almost as if they have no principles - except holding on to power that is.

Edited by billybong

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Oh, and the government uses a lot of contractors. If contracting is no longer worthwhile, they are going to have to take on more permanent staff, and maybe pay them a lot more because the private sector will want to replace all their contractors too.

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Heres a few points why contracting is hardly worth the candle nowadays:-

Clients take you on for the skills you already have- they dont train you at their expense, though any good employer will ensure there is professional development for their permanet staff. So there is not the same career progression a permanet worker enjoys.

So the only training contractors get is at their own expense and in their own time - without pay. And because the training is not for a contract being worked on, the expense of training is not even tax-deductable.

Paid holidays - forget them if you are a contractor.

Time between contracts. This seems to be get longer and longer. Clients faff around deciding on the job description, etc, and so there are long periods between paid contracts. And yet looking for contracts is essentially a sales exercise for the contractor - it's still work, but unpaid.

Employers NI. A contractor not only pays income tax and employees NI, the contractors Ltd company also pays employers NI.

Liability insurance, accountant's fees, advertising, pensions, disbursments, etc.

As a contractor changes jobs regularly, it is difficult to live close to work - you might be working anywhere. So, high travel costs, plus possibly paying for accomodation away from home.

Contracting rates have also been squeezed. Maybe the few who stick with it may be able to command higher salaries if there are fewer contractors.

The irony is that 'permies' who support a 'crackdown' on contractors will see contracting being farmed out to large Indian ofshore companies, who will undercut rates so much the permanent jobs may be threatened. And offshoring will reduce the tax take for HMRC.

Moral: If you try to kill an industry through taxation, you kill an industry which then pays no taxes.

Yep. It certainly pays better on a day to day basis - but that's just it. You may not have a 'day' for 6 months.

There are lots of contractors who wing it and manage to get by. However - 100% of permanent staff I know would choose to work alongside them rather than the out/in sourced crews. It's men against boys.

I do wonder how they plan to implement this ? They can't seriously be saying any contractor with a client for 30+ days instantly becomes an employee ? That's going to cause so much mayhem its unbelievable.

So do I now get sick pay ? Redundancy claims ?

I reckon they just want things to carry on much as just now - but all one man bands have to tick a box to state "yes I will pay x amount more tax"

Very interesting to see what happens.

North sea will be hugely impacted also - although at present probably not such a great concern.

I can't imagine the likes of shell or bp are going to like being told their flexible can be told to ****** off at a weeks notice workforce - is no longer allowed ?!

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Oh, and the government uses a lot of contractors. If contracting is no longer worthwhile, they are going to have to take on more permanent staff, and maybe pay them a lot more because the private sector will want to replace all their contractors too.

NHS are full of them no ?

So come April all these agency nurses and locum doctors are suddenly going to become permanent public sector employees ?

The more I think about this the more it seems like they are just fishing to test the waters. I wonder what their real plan is......

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Damn! I'm just quitting my job and was thinking of doing some consultancy. Not to maximise income v permie - just as something to do and to keep my hand in. If it all proves too bureaucratically tricky, I'll forget it and just go fishing instead.

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I think that the govt and 'people' don't seem to realise that we actually have to be ltd co contractors just to get the work.

Won't take on staffies in such numbers, or have the flexibility. Or sole trader. Even PAYE contractor in big organisation is not available now. It's not all about tax dodging.

But if forced down this route, youre as well taking the advantages....

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This summer the government announced a crackdown on contractor business travel expenses. This would mean that your business would be operating at a competitive disadvantage to big consultancies such as Accenture or contractors based in other EU countries, who will still get the tax reliefs.

So UK businesses will be forced to use Accenture instead of small contractor businesses, and will end up paying about 3 times as much for the same services.

I suspect Accenture, etc., have the HMRC's ear.

Anyone who thinks this is a Tory government with small business interests at heart needs their head examined.

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It's going to come as a bit of a shock to some householders when they suddenly find they have a cleaner, a gardener and a handyman on the payroll.

Except households generally aren't registered sole traders or incorporated companies

Edited by Si1

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