Surprise IR35 announcement in Budget?
The Mail on Sunday has reported that the Chancellor is planning to announce a clampdown on PSCs in Wednesday’s Budget, in an attempt to recoup some of the £400 million that the Treasury estimates it loses each year because of PSCs being able to structure their tax affairs efficiently.
Whilst it is not clear whether Mr Osborne intends to tackle IR35 head on, the report seems to suggest that this latest strategy may be aimed at those contracting within the public sector as the article gives specific mention to the 100,00 individuals, including senior civil servants and NHS staff, being paid via their own PSCs.
Under George Osborne’s plans it would be the employer that would appear to be the sole arbiter in deciding a contractor’s employment status. Presumably the system whereby a contractor currently has to provide assurances that they are genuinely outside of IR35 would be dispensed with and replaced with some other simple test or benchmark. Prizes for guessing what this test might be – supervision, direction or control perhaps? HMRC’s favoured test that has been used a number of times in recent years.
A Government source told The Mail on Sunday, “You have situations where someone working in a public body pays thousands of pounds less in tax than someone doing exactly the same job alongside them who’s taxed as an employee. That can’t be fair – either on the taxpayer or their fellow workers. We are going to put a stop to it.”
Of course, we have been her before, most recently just before last year’s Autumn Statement, when both the Daily Mail and Guardian reported ministers were considering forcing those contractors who work for a client for more than one month, onto the books.
Clarity and fairness
Meanwhile, 55 MPs from across all parties and including Treasury Select Committee member Helen Goodman MP and SNP deputy leader, Stewart Hosie, have signed an open letter to the Chancellor calling for an end to the legislative ‘sticking plaster’ approach the Government adopts towards contracting. The letter reads:
“The number of self-employed people in the UK has reached 4.6million, representing nearly 16% of the workforce and shows no sign of slowing. Yet there are another 1.6 million workers referred to as contractors who are poorly recognised by a tax system which seeks only to place workers in one of two boxes – employed or self-employed.
Successive governments have been clear on the important role these workers play in providing UK businesses with the flexibility they need to succeed but it is not clear to these workers or employers where they fit.
They have been the subject of a sticking-plaster approach that has created layers of confusing rules and no clarity over their tax affairs.
In the last 12 months alone, the sector has been subjected to two significant changes, one in the Finance Act 2015 and the second proposed in the Finance Bill 2016. Further changes to IR35 are also expected in 2017.
It is time for government to conduct a strategic review of this type of employment to meet its aim of a simplified tax system where the labels given to workers are reflected in the real economy.
We believe a well-run review will result in a more orderly market which sees the right workers get the right reliefs, greater tax compliance and increased investment in jobs. The Office of Tax Simplification would be the natural authors of such a review.
We urge you to level the playing field and use a strategic review to end the sticking plaster approach, bring clarity to the most dynamic labour market in the world and give all types of workers a fair deal and equal recognition”
I wonder how much of that £400 million will already be recouped by the introduction of dividend tax.
You have to wonder as to the point of continuing with IR35.
D.
As public sector employees and contractors are paid from taxation revenue anyway, why not pay them tax free?
full out IT strike….. bring the country to a stand still for a week will make them realize how big a part we play. We pay less tax yes…. we dont get holiday, sick, sick pay as well
I have to run a company, pay corporation tax, collect VAT, get no holiday pay, no benefits, work stupid hours, and live away sometimes just to keep working.
Is that like an employee ?
Is that all 400 million !!, if he had a real go at the proper dodgers like Amazon Vodafone Facebook and Google he’d get Billions. Its always the little guy that cant afford to fight back,Easy targets. Oh how I wish I hadn’t voted for them. !!!!
If you want to solve this problem make dividends an expense chargeable against corporate tax rather than an appropriation against profits. Income tax is then charged against dividend as is a tax equivalent to the employees NI charge. Companies paying dividends pay a company based tax equal to the employers NI on the dividends. Like employers NI, this can be offset against corporation tax so the Googles and Amazons of this world will end paying some taxes on their commercial activities in this country.
Now it won’t matter if you are an employee or contractor, everyone gets treated the same and we can scrap IR35 for once and for all.
Problem is that George Osbourne will not do this as it will upset those wealthy individuals who get a large proportion of their income through dividends and who will have to pay taxes etc to the govt that are broadly similar to those paid by employees.
[quote]A Government source told The Mail on Sunday, “You have situations where someone working in a public body pays thousands of pounds less in tax than someone doing exactly the same job alongside them who’s taxed as an employee. That can’t be fair – either on the taxpayer or their fellow workers. We are going to put a stop to it.”[/quote]
My decision to go contracting in the public sector wasn’t a choice. I didn’t wake up one morning and think “I’m going to start earning £500 a day as a contractor because I’m fed up with being a band 4 in the NHS”. I went contracting because I was made redundant from my permanent role and after applying for numerous permanent roles, was unsuccessful. In the ten years I’ve been contracting, I’ve worked for 25 different NHS trusts, spanning County Durham to East Essex spending much time away from my family. I made this sacrifice only because the pay supported the job. Staying in hotels and B&B’s is not cheap and certainly wouldn’t be doable on a band 4 rate. I go where the work is. Plain and simple. If I didn’t, I’d be out of work, as permanent admin roles in the NHS seem to be few and far between.
David Cameron gloats over how many of his workforce are now running their own businesses, and in the next breath, penalises us for filling this job gap.
To quote Bunderson – “I didn’t wake up one morning and think “I’m going to start earning £500 a day as a contractor because I’m fed up with being a band 4 in the NHS”.”
£500 a day!! in the NHS!! For an admin role!! No wonder it’s going to the wall. Maybe junior doctors should set up their own companies : )
‘ … doing exactly the same job … ‘ Its not quite as simple as that. I currently contract with the NHS and work in a team of 10 people comprising of 2 contractors and 8 permanent members of staff. At a high level then yes, we all do the same job (i.e. we are software testers) but when you actually break down the jobs we do you begin to see our jobs are vastly different. Both myself and the other contractor are very technical whereas the permanent members of staff (all in their 50s) are not. Only us contractors can do the following: automation testing (QTP), performance testing (LoadRunner), write encryption / decryption tools (Java), create XML test tools (Perl and Java), create data creation tools (Perl and Java), write complex SQL queries (TOAD and SQLPlus), maintain the test environments including installation of certificates, version control (Git), write shell scripts on Solaris and batch files in Windows, maintain the virtual test servers etc etc basically the list goes on and on – the permanent members of staff have excellent domain knowledge but dont have any technical expertise whatsoever therefore to go back to the original quote … its not quite as simple as saying we all do the same job! And to quote the other comments, we dont have sick pay, get annual leave pay etc etc. If this goes through then it needs to be evaluated on a case-to-case basis.
I was a permanent employee for 14 years and have been a contractor for the last 2 and boy have I learned about the challenges of being an independent contractor…
Having said that, it really frustrates me that some people try to ‘excuse’ their abuse of the system by pointing the finger to the big companies that don’t pay enough tax. Don’t get me wrong, I do think they need to blooming pay a lot more than what they are doing. But the problem is widespread and integrity is required everywhere, from the one-person business to the mega multinationals that can afford to pay for very expensive and offensive tax planning. I believe it is time we all start by thinking about what each one of us is doing first. If you are a contractor but you have just the one client, you work from their premises all the time, you’re part of the team, use their tools, receive whatever level of direction/control/supervision and can’t send somebody else to do your work (among other things) – then please don’t tell me you are a contractor! You should have been employed and your ‘client’ should be paying employer’s NI and providing you with benefits. Costly – certainly, but that’s the right thing. It is time to stop trying to justify the abuse of some because the big corporations don’t do it either. So because they don’t pay tax my ‘non-paying’ tax would be justified and made right? How is that supposed to work?
I could be paying less taxes than I am at the moment, but I chose to do the right thing and pay myself a reasonable salary first. Let us start doing the right thing ourselves. That’s the only way for true change to take place.
I had to laugh at the Joe’s comment above. The actual nature of the work is irrelevant. It doesn’t matter if you are technical or not. The point the Chancellor is making is that you work to very similar (identical) day to day working practices and yet are able to pay yourself a small salary to avoid tax and NI that the employee equivalent would not be able to do. If your point had any logic what would you say if all the employees were technical and the PSC owners all administrative? Would they suddenly become IR35 compliant?
Lets all have a think about this for a few minutes…….
The main problem isn’t that contractors don’t pay enough tax or the big corps don’t pay enough tax, the main issue is that the tax receipts don’t cover the governments expenditure.
Radical solution would be to actually lower the rate of tax for companies to the point where major corps would want to divert all of their profits from abroad to lower their tax bills. This in turn would increase the revenues from tax, increase employment (more global HQ’s in the UK) and reduce government expenditure (reduce unemployment).
I’ve been a contractor for 7 years now in the public sector on a moderate rate. My main reason is the flexibility it gives me to pick and choose which contracts I want to do and to give me the time thttps://www.contractorweekly.com/component/jcomments/captcha/97374o spend with my family as I see fit.
Full briefing note here:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/507978/M1007_Tech_Doc_FINAL_V3_0.pdf
[quote name=”Bel”]I had to laugh at the Joe’s comment above. The actual nature of the work is irrelevant. It doesn’t matter if you are technical or not. The point the Chancellor is making is that you work to very similar (identical) day to day working practices and yet are able to pay yourself a small salary to avoid tax and NI that the employee equivalent would not be able to do. If your point had any logic what would you say if all the employees were technical and the PSC owners all administrative? Would they suddenly become IR35 compliant?[/quote]
Well I hope you had a good laugh Bel because your wrong. If the NHS HAD technical people then they wouldnt need to bring in external contractors to fulfil their IT needs. Also, its only us contractors who work weekends and the odd nightshifts to hit the tight deadlines and not the permanent members of staff because they like their cosy 9-5 shifts therefore to disprove your argument us contractors DONT work identical shift patterns. Also, the contractors are the only ones on call 24 hours so please think before you write gibberish.
Shame the chancellor does not realise those companies keeping perm jobs in the UK are paying around minimum wage or off shoring. It is cheaper to employ contractors and there are no salary sacrifice’s. Contractors don,t work they don,t get paid. Plus they pay all there costs, pension etc.
[quote name=”Bel”]I had to laugh at the Joe’s comment above. The actual nature of the work is irrelevant. It doesn’t matter if you are technical or not. The point the Chancellor is making is that you work to very similar (identical) day to day working practices and yet are able to pay yourself a small salary to avoid tax and NI that the employee equivalent would not be able to do. If your point had any logic what would you say if all the employees were technical and the PSC owners all administrative? Would they suddenly become IR35 compliant?[/quote]
Funny you had a good laugh because I’m laughing at your post. You are in effect saying that if I apply for a contract job in a team like say the one Joe described, I should have to be paid PAYE because there are 6 people with the same job title? You say people are ABLE to pay themsleves a small salary with small tax and NI contributions. No they aren’t. They are entitled to as contractors on a contract job. They can’t rock up to a perm job interview and demand the salary is paid into their PSC, it doesn’t quite work like that.
I am a contractor getting paid a day rate, I travel up to 400 miles some days, work away from my family for long periods of time. My expenses are included in my rate, why should I pay tax on them? I don’t get paid for holidays or sickness.
If this is enforced I will have to sign on, so much for looking after the workers, torries only look after the rich, always have, always will.