The end of One man band Contractors?

[j.o.s.h.1408]

@Abaxas, a few better examples are:

Pensions - no tax on those
ISAs as a savings vehicle - no tax on those.

@shathis - as has already been pointed out, that's not tax evasion. As you should be aware, you need to pay corporation tax, employer's AND employee's NI. You may also pay VAT. The additional income you may have earned is to offset the pension, training, risk the client may turn around and say they don't want you for whatever reason the next day, holiday, sick pay, liability and other professional insurances, accountancy fees, contract reviews (you did budget and account for that right because you might find HMRC beating a door to your path if you're found to be inside IR35 and, no you can't then expense the lube).

@josh, I don't see where it says you can't use an umbrella? It says if you're employed as a flexible resource you may have to be taken on as payroll. As I understand it currently, if you are working through an umbrella you are technically employed by that umbrella in the same way that a consultant for Capita, Accenture etc are albeit that you're finding your own work.

I would be REALLY happy if I didn't have to go through a Ltd company, and could be just self employed. It would probably get rid of a LOAD of paperwork for me, but no agencies will touch a self employed consultant, you HAVE to work via a Ltd company.

How i read it was that You have to be employed BY the company, not via unbrella. So it doesnt matter if your ltd or unbrella, You yourself have to be employed by the client directly after one month

[b0redom]

Well it's likely the T+S thing (both are still in consultation at the moment, so are theoretically subject to change), is likely to happen in April next year. That's more likely to upset the apple cart. It will mean that if I go to work for a week in Leeds for example (200 miles away), I can't claim for mileage there, and I can't claim for a hotel as legitimate expenses. A consultant for Capita or IBM or whoever could though. That just seems fundamentally unfair.

It remains to be seen what will happen with end-client employment. I've just finished up a contract working with around 200 other contractors on a short(ish) term contract. There is just no way the end customer would take 200 extra employees onto their books. If the end client went to the likes of IBM / Accenture, does that mean that they would have to take on their employees as employees rather than on a fixed term basis? If not, how is that different from an umbrella? In fact, how is that different from engaging a Ltd?

It's all a very ill thought out mess, a bit like IR35 really.

There are massive threads on it over at contractoruk. That site is a lot more 'wild west' that this site though.

[shaithis]

You all seem to be missing the word effectively in my post.

The amount of tax I have "avoided" is huge and it's wrong. Tax should be paid equally and fairly and contractors currently do not pay their fair amount.

[j.o.s.h.1408]

You all seem to be missing the word effectively in my post.

The amount of tax I have "avoided" is huge and it's wrong. Tax should be paid equally and fairly and contractors currently do not pay their fair amount.

they do. perms dont pay VAT or corporation tax, Contractors do.

Perms get benefits and a bit more job security, Contactors dont and are expected to have some downtime.

[b0redom]

The amount of tax I have "avoided" is huge and it's wrong. Tax should be paid equally and fairly and contractors currently do not pay their fair amount.

As has already been said, if you don't feel you're paying enough tax, I'm sure HMRC would appreciate a cheque. I presume you declared yourself inside IR35 whilst you were at it?

Do feel free to pay tax on your pension whilst you're at it and any income generated from your ISA (as they're effectively avoiding tax too.

[peterb]

So no nasty surprises for independent contractors in the autumn statement, although it seems consultations are still going on over the scope of IR35.

[scaryjim]

I assume shaithis also has strongly negative feelings about the cycle to work scheme that I've bought my last three bikes under? After all, that's another tax avoidance measure (as are travel permits provided under salary sacrifice arrangements, which are also legal under an approved scheme).

As to the originsal article, it would appear that Osborne - and the Mail - think that employing staff is cost-free to a business. or do they think that businesses employ long-term contractors purely for the benefit of the contractor? I always thought the Tories were the party of the free market, but they seem to be doing everything in their power to dictate how businesses should be run. It's a most confusing juxtaposition....

[badass]

You all seem to be missing the word effectively in my post.

The amount of tax I have "avoided" is huge and it's wrong. Tax should be paid equally and fairly and contractors currently do not pay their fair amount.

The difference between what a permie and a contractor pays is a single digit percentage unless you've been taking the mick with expenses and are therefore probably committing tax evasion.

[shaithis]

The difference between what a permie and a contractor pays is a single digit percentage unless you've been taking the mick with expenses and are therefore probably committing tax evasion.

Utter rubbish. By the time you take your expenses out and "pay yourself £200 per week, with the rest being paid as dividends" the difference is substantial.....and that's before you take into account the higher pay (25-100% more) than the permie gets. Calling it a "single digit percentage" is underplaying it to a gross degree.

[peterb]

Dividends come out of taxed income, the company will have paid corporation tax on those earnings before the dividend is paid. Salaries are allowable against corporation tax as they are a business expense, but are then liable to personal tax.

TL;dr

Salaries are paid out of untaxed income
Dividends are paid from taxed income.

[b0redom]

Also, the whole dividend thing is being shaken up next year anyway with the dividend tax.

@shaithis - I know you might think I was being flippant, but you have run all this past an accountant right? If you've just finished a contract, you may have significantly less to play with than you think you do.....

[Phage]

I am an accountant. The difference is minimal.
Unless you've making some very odd claims. Next year it's going to be much worse.

[badass]

Utter rubbish. By the time you take your expenses out and "pay yourself £200 per week, with the rest being paid as dividends" the difference is substantial.....and that's before you take into account the higher pay (25-100% more) than the permie gets. Calling it a "single digit percentage" is underplaying it to a gross degree.

Sounds like you're either:
Taking the mick with expenses
Or have miscalculated your tax liability. It is a single digit percentage. And stop confusing the issue where a contractor gets paid more. That's because they are flexible, cheap to get rid of, cost nothing in pension, sick pay, holiday pay or bonuses. That's worth a premium. They are taking more of a risk.

Either way, you're being incredibly overzealous about this.

[Jonatron]

Can confirm the tax difference between perm and contract is not big. If contractors weren't paid more per day than perm, then nobody would do it.

[scaryjim]

As others have said, unless you're being really ridiculous with your business expense claims (which would be tax evasion), most of the money you don't pay yourself as a salary will be liable to Corporation Tax. The biggest saving is actually going to come from not having to pay NI, rather than not having to pay tax.

It's probably worth considering that if you're paying yourself as an employee of the company you should probably be paying yourself minimum wage as well, which if you're working full time is going to be well over £200 a week....

[peterb]

... And don't forget that as an employee of your company, your company as your employer must have mandatory employers liability insurance in place (as well as any discretionary professional indemnity insurance and possibly public liability insurance)

Expenses are tricky. I wrote to the tax office explains what I would be claiming for and gained a dispensation. However I was renting a flat on a short term let. I could claim corporation tax relief on the rental for five days a week, but was taxed personally for the weekends as it was deemed to be a benefit in kind for those two days at the weekend

And your company has to pay empress NI contributions if you are paying yourself above the NI threshold (as well as your personal contributions.

The contractors rate has to take all these overheads into consideration.

So I hope you did Shaithis, I wouldn't want HRMC to be reading this thread and suspecting you of tax evasion