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Hammond plans tax crackdown on 'synthetic self-employed'

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14 hours ago, Henrik said:

If you were on e.g. a 500/day contract, that works out as about 130k / year (for 260 days worked per year). Even if you pay 40% tax on that (plus the loss of personal allowance), that's still a pretty good wage, compared to a permie doing the same job, who might get 300 per day including benefits.

I.e. even with IR35, it makes sense to go contracting for a lot of people in IT.

500 PPD, in what sector are these magical rates being offered?

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16 hours ago, Henrik said:

If you were on e.g. a 500/day contract, that works out as about 130k / year (for 260 days worked per year). Even if you pay 40% tax on that (plus the loss of personal allowance), that's still a pretty good wage, compared to a permie doing the same job, who might get 300 per day including benefits.

I.e. even with IR35, it makes sense to go contracting for a lot of people in IT.

What you are missing here is Employer's national insurance, which is 13.8% on everything about £162 a week (no ceiling) so a contractor pays quite a bit more tax under IR35 than an equivalent permie on the same salary. It used to be the case, of course, that you'd pay quite a lot less tax, but in trying to "fix" this issue the government has gone too far the other way IMO. Also don't underestimate the value of benefits such as holiday pay, sick pay and pension contributions, plus occasional perks such as share save schemes, not to mention job security, redundancy payouts etc..  You really need to figure on about 44 weeks per year (you have 52, which is ridiculous..), and then subtract as a minimum employers NI  and some necessary costs of doing business as a contractor (accountants etc) - so £500 p.d. is somewhere around £90k permie. Still decent enough of course, but with additional risk, no (paid for) career development etc I'd probably equate it to a 70k permie role.

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16 hours ago, Henrik said:

If you were on e.g. a 500/day contract, that works out as about 130k / year (for 260 days worked per year). Even if you pay 40% tax on that (plus the loss of personal allowance), that's still a pretty good wage, compared to a permie doing the same job, who might get 300 per day including benefits.

I.e. even with IR35, it makes sense to go contracting for a lot of people in IT.

260 days per year? Why work that much when 40% goes to the treasury? Permies typically work closer to 220 days/year.

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29 minutes ago, the_duke_of_hazzard said:

260 days per year? Why work that much when 40% goes to the treasury? Permies typically work closer to 220 days/year.

Yep - max would be 220 days a year (and often a lot less). Last year I hit something like 232 but that was with 2 working bank holidays and few days of weekend travel.

Now the killer with this change actually isn't the tax changes its the impact on expenses. If you work away (as I do) you are likely to spend £200+ a week on hotel rooms and at the moment that comes out of your untaxed income - so you earn £2300 a week. Inside IR35 you cannot deduct expenses from your salary so you are looking at the equivalent of £2000 rather than £2300.

Which is why there are some jobs in Liverpool and Exeter that haven't been filled in months as there is no-one local with the appropriate skillset and no-one is desperate enough to live away from home and pay for it from their own money.

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27 minutes ago, Houdini said:

Yep - max would be 220 days a year (and often a lot less). Last year I hit something like 232 but that was with 2 working bank holidays and few days of weekend travel.

Now the killer with this change actually isn't the tax changes its the impact on expenses. If you work away (as I do) you are likely to spend £200+ a week on hotel rooms and at the moment that comes out of your untaxed income - so you earn £2300 a week. Inside IR35 you cannot deduct expenses from your salary so you are looking at the equivalent of £2000 rather than £2300.

Which is why there are some jobs in Liverpool and Exeter that haven't been filled in months as there is no-one local with the appropriate skillset and no-one is desperate enough to live away from home and pay for it from their own money.

Why don't the employers pay more?  (Or is that a stupid question).

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2 hours ago, Houdini said:

Now the killer with this change actually isn't the tax changes its the impact on expenses.

And keeping money in your Ltd, and paying as an employer in to your SIPP.

It is also interesting that if you are caught by IR35, HMRC can go back 6 years. Once these reforms are bought in, a lot more people could inadvertently be (dobbed in by employer) caught by IR35.

I for one, will just plain and simple quit being a contractor, and do something else that is indisputably 'self employed' even if I earn a lot less, although I think I can have a similar lifestyle financially as a tradesman. My own personal circumstances will see me better off as self employed, in terms of pension and expenses. I am also ready for a change and getting quite bored of my current line of work.

Im doing all the hours I can at the moment, to have a chance of starting a self employed business before April 2020, keeping the money in the Ltd as IR35 is on invoices not the cash pile. Hopefully I can get some training / equipment, or a few assets, I have a few ideas already. With 18 months there's enough time to change course.

Its my ball and I say you all cant play with it.

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1 minute ago, NoGo said:

And keeping money in your Ltd, and paying as an employer in to your SIPP.

Nothing to stop you piling most of your contractor earnings into your pension, thus avoiding employers/ees NI and all income tax. It's a no brainer really, if you can afford to do without since you are getting a near 100% effective return immediately and can now do what you like with the money from 57(?), including of course the 25% tax free lump sum. There is a £40k p.a. limit but you can make up the last three years to this amount if you didn't fully use them.

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Royal Bank of Scotland paid contractors almost £400 a day to stuff envelopes, according to the Press Association.

The bank said the people were hired for more skilled jobs, but were used as "short-term support" on "a limited number of occasions".

It refused to say how many contractors had helped out with secretarial work.

But RBS - which is 62% taxpayer-owned after its emergency bailout in the financial crisis - is estimated to have wasted thousands of pounds, says PA.

Contractors who worked at the RBS offices in Manchester in certain periods last year and this year told the Press Association they were paid £330 pounds a day - excluding VAT - to help with mundane tasks such as sending PPI letters to customers.

 

https://www.bbc.co.uk/news/business-46174269

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20 hours ago, NoGo said:

And keeping money in your Ltd, and paying as an employer in to your SIPP.

It is also interesting that if you are caught by IR35, HMRC can go back 6 years. Once these reforms are bought in, a lot more people could inadvertently be (dobbed in by employer) caught by IR35.

I for one, will just plain and simple quit being a contractor, and do something else that is indisputably 'self employed' even if I earn a lot less, although I think I can have a similar lifestyle financially as a tradesman. My own personal circumstances will see me better off as self employed, in terms of pension and expenses. I am also ready for a change and getting quite bored of my current line of work.

Im doing all the hours I can at the moment, to have a chance of starting a self employed business before April 2020, keeping the money in the Ltd as IR35 is on invoices not the cash pile. Hopefully I can get some training / equipment, or a few assets, I have a few ideas already. With 18 months there's enough time to change course.

Its my ball and I say you all cant play with it.

Er, surely HMRC can go back indefinitely if it can establish fraud, concealment or similar? Or did the law change unknown to me?

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Got it from a IR35 web site. Sounds plausible to me.

From a quick google search (however DYOR):

 

In normal cases, the HMRC tax investigation time limit is 4 years, in which they can go back to claim money from taxpayers. If someone has been visibly careless (submitting tax returns with mistakes),HMRC can journey back 6 years.

HMRC will investigate further back the more serious they think a case could be. If they suspect deliberate tax evasion, they can investigate as far back as 20 years. More commonly, investigations into careless tax returns can go back 6 years and investigations into innocent errors can go back up to 4 years.

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17 minutes ago, NoGo said:

Got it from a IR35 web site. Sounds plausible to me.

From a quick google search (however DYOR):

 

In normal cases, the HMRC tax investigation time limit is 4 years, in which they can go back to claim money from taxpayers. If someone has been visibly careless (submitting tax returns with mistakes),HMRC can journey back 6 years.

HMRC will investigate further back the more serious they think a case could be. If they suspect deliberate tax evasion, they can investigate as far back as 20 years. More commonly, investigations into careless tax returns can go back 6 years and investigations into innocent errors can go back up to 4 years.

Well... HMRC really has no limitations which will help tax dodgers (~20 years). If you've been playing silly buggers for longer then it's safe to assume they won't make a special case for those accounts after 2 decades unless it's for significant fraud.

Check for yourself: HMRC Compliance Handbook chapter 50000

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On 12/11/2018 at 19:41, Henrik said:

If you were on e.g. a 500/day contract, that works out as about 130k / year (for 260 days worked per year). Even if you pay 40% tax on that (plus the loss of personal allowance), that's still a pretty good wage, compared to a permie doing the same job, who might get 300 per day including benefits.

I.e. even with IR35, it makes sense to go contracting for a lot of people in IT.

If you knew enough about the tax system you would realise that your figures are simply not accurate. In addition to 40% tax, you will also need to pay employees NI and also employers NI. You will in effect be losing around 60% of your pay. Then add on top of that that any expenses incurred such as travel and hotels cannot be claimed as expenses and have to be paid from the remaining net income. Add this to the lack of job security and no normal employment perks, it begins to look very unattractive indeed. For these reasons I gave up IT contracting years ago. I had skills which earned me a very good living, but these skills are no longer utilised in the UK economy, simply down to the government being so greedy. Instead I now make a living from business which could never be categorised under IR35, nothing to do with IT.

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