Bajie

from

Neil Micklethwaite

Go PCG

JoeyDeacon

It makes me laugh that contractors think they shouldn't really have to pay (much)tax. Anybody who has a full time job and earns £100,000 a year would roughly pay £37,000 a year in income tax and national insurance. Seems to me that if you are a contractor and pay yourself £4500 a year and take the rest as shareholder dividends you can get away with paying a third of this.

If you are contracting for one company then as far as I am concerned you may as well be employed by them and pay PAYE the same as everybody else.

SO STOP MOANING!!

AlexM

Don't talk s**t! - I would guess that you must be a permie . I don't know how you arrived at your figure - any 100k position would be unlikely to deliver that as a salary. 90% of these positions would deliver part of the payment as stock options or via other more taxation friendly methods.

If you could tell me how to pay £12000 gross tax on £100k turnover then please do.

Since when has there been a legal or moral obligation to arrange your affairs to pay as much tax as possible?.

Contract employment is not comparable with permanent employment in any way!.

Pensions, payed Holidays, Statutory sick pay, training, security of tenure, Employee protection legislation, training... need I say more?

Maybe you think that an IT professional should provide their specific skills, invest in training themselves and bear the additional personal risks and not be rewarded for it?. If you enjoy these benefits as a permanent employee then don't bitch because you don't get payed as much...

You don't hear companys moaning about the cost of contract staff because they know that they are skilled, motivated, professional, cost effective and can be hired for a predetermined period.

If IT professionals are forced to give up contracting then companys will find it much harder to execute projects which require specific skills and ultimately will pay much more for them...

Hardly a policy consistent with the Governments stated aim of putting the Uk on the cutting edge of technology for the 21st century is it?.

Rant over - thanks I feel better now!

Cheers,

Alex

Jerome

I'm with you Alex. Why should someone obeying the law suddenly have to pay extra tax? Because New Labour thinks so. A couple of high profile cases where guys avoided paying the CSA etc as much money as they morally should resulted in this knee-jerk reaction called IR35.

If Labour think they are getting an extra £400 million in tax, think again. The contractors who don't leave the country, will have to increase their rates. This will mean all the companies employing contractors will have to pay more. This will eat into these company's profits. The added cost will either be absorbed and therefore mean less tax is paid by the company (eating into the £400m) or the cost will be passed onto the clients/customers of said companies.

BTW, I'm a permie.

Jerome.

ChrisB

Typical New Labour back-door tax.

They want their cake and be able to eat it.

Either the contractors pay the same tax as permie's and get all the benefits (as mentioned by Alex), or they pay less and get less.

Chris.

GCollier

I'm a contractor and can see both sides of the argument. I know a lot of contractors and they complain that it's unfair because they can't "compete with the big boys", can't "invest to build up a business", have to "take additional risk" and "arrange their own pensions, medical insurance and training". These are all perfectly valid points, and I'm sure that there are a minority of contractor/entrepreneurs who will be unjustly hit.

But....

Whilst virtually every contractor uses these theoretical points to complain and whinge, in my experience, the majority in practise:
* Sit on their fat £60+/hr rates (> £100,000pa), and still leave on time when things are going wrong, in reality taking less risk with their free time than the permies
* Pre-IR35 invested f***-all to "build up a business", but instead paid dividends to wives/girlfriends/mothers/fathers/grandparents, which was then returned to them in "brown envelopes"
* Abuse allowable expenses, and purchase personal goods, flights, meals, taxis through their company whenever they can get away with it.

Obviously I'd rather be without IR35, but contracting is still bloody sweet compared to permie employment, and I don't know one contractor whose gone back to being permie or left the country.

Gary.

AlexM

GCollier,

Yes, I agree that there are some contactors that take the p**s, but in my experience they are definately in a minority. If any contractor in my company isn't pulling their weight then they are out of the door...

I would also take issue with your point that pensions, training, and medical/other experience are only funded by a minority of IT contractors. Who will make provision for these expenses if not them?.

It always seems as though the excesses of the few are used to justify punative measures against the majority. This is simply a stealth tax which has been imposed on a group of people who the Government think are unlikely to vote for them anyway.

I know many people in IT who have given up contracting since the introduction of IR35 and I'm sure I'm not alone.

Cheers,

Alex

polarbearit

Ok well I am a desktop support (2nd/3rd line)contractor and as you may be aware we can only dream of £60ph, is IR35 is certainly going to have a big impact on my income to the extend where I am serious could not realistically afford for it to be law.
I am a contractor because I do not like working as a company's employee. I don't buy into all the bullsh!t that goes with it.

The contract tax incentives are less significant anyway as I still have to pay myself a sensible salary (IR insist, so no £4500 salaries anymore)!

The reality of IR35 will make me re-mortgage my house or sell the scoob or put up my hourly rate (not possible).

I have a large tax burden already, so I am not impressed with IR35, but have no option but to comply if it is made legal!

Bajie

How can an opinion be based on what one person has been doing for the past three years.
I have been contracting since 1996 in the UK and abroad.
All my company expenses ARE company expenses.
I have a car which is not owned by the company, 12k AV System etc which is all owned by me not my company.
So, who is the exception and who is the rule.
And believe it or not, as sure as eggs is eggs there are people out there contractor and permie who don't deserve to be paid one tenth of what they earn.
I'm not one of them so please don't tar me with their brush.

GCollier

Alex,

There is the 5% of turnover thing which (in my case) more than covers my expenses. I don't have to claim for travel/accomodation, and can see that this would quickly eat it up.

The example I gave is one of the extreme ones I know. Plenty of other people go for salary + shared dividend option, in the full knowledge that dividends which aren't paid to them directly somehow wind their way back.

That said, I do know what you mean about not wanting the hassle anymore.

Gary.

AlexM

Gary,

Yes, I know about the 5% thing...

Expenses are already subject to the 'Wholly, exclusively, and necessarily' test to be allowable - the IR seem to have made an arbitrary decision that they can't be arsed to check this and so we'll assume that everything above 5% of turnover is subject to employers NI as if I had simply trousered it!.

The dividend distribution to lower rate tax payers that does happen is illegal tax avoidance, and could easily be dealt with by some simple checks (hmm company secretary is a 50% shareholder, and an eight year old family member eh? hmmm..). This is a smoke screen.

Anyway, I don't disagree that some people do push the limits. It is simply that IR35 penalises all contractors honest or dishonest, and isn't required to deal with the supposed big issue. The real issue is screwing cash out of high earners without the political disadvantages of a raise in the top rate of tax.

It is of course notbale that the truely rich pay next to no tax at all e.g. Michael Ashcroft (Conservative party treasurer), Bernie Ecclestone, et al. As usual, the financial high rollers have the ear of the political establishment and are consequently treated amazingly leniently by the tax authorities.

I'll shut up now - I'm only winding myself up

Cheers,

Alex

Ga22ar

So I'm one of the great unwashed... They way I see it is if the government want to screw me because I'm successful by my own skills and abilities then I'm gonna screw them..

Having your own business has some interesting side effects when it comes VAT and costs, I may pay more tax then the average permie but I get none of the permies benefits from my clients. So I put everything through the business which in effect means I pay less tax.. but it's not a huge amount. At the end of the day I get the luxury of who I work for and when.. not exactly an option for most permies..

dsmith

Currently I'm in a sort of Halfway house. Permanent employee of one company, but I'm sub-contracted to another (BT). Some of the perks of permiedom (Secure job - Guaranteed salary, some of the "joys" of contract life - organise my own pension/sick insurance etc)

It makes a mockery of a lot of the IR35 rules. BT choose the people they want for their specific skills, I'm can't be exchanged for someone else at my companies will, BT have to select and choose which people they take. So as I understand it, one of the key IR35 tests for a contractor can't be met by a bona fide consulting company (100+) people.

Personally I think something should have been done to curb the worst of the p*sstakers (those who employ their entire families as Admin staff and yet pay themselves tiny salarys) and if we are being honest many many contractors fell into this group but IR35 was the very worst sort of New Labour policy by knee jerk reaction style of government.

Dean

JoeyDeacon

My initial comments about this are all based on one of my friends who has been contracting for about 3 years now.

He moans about the tax he has to pay even though he is making 100K a year. Surely the fact that you have no job security, healthcare, pension etc. is more than made up by the money you are being payed. He also leaves at 5PM on the dot every night.

It also seems that everything my friend buys is put through the company so he doesn't have to pay the V.A.T on it. He even bought a widescreen TV and £10,000 worth of stereo equipment which he said he needs for presentations and could therefore claim the tax back on it. I must admit I don't know the complete in's and out's of IR35 but there are a lot of contractors out there taking the **** and as most are only working for one company I see no reason why they shouldn't be treated the same way as people with permenant jobs.

As for contractors being highly skilled I would like to disagree with you there. Obviously a lot of them do have a lot of experience but from what I have seen so far most contractors get by on their Bull****ing abilities. I have been a Visual Basic Programmer for 4 years now and I was asked by a friend to make a few changes to a program he had written for him by a contractor earning over £60K a year. I couldn't believe how poor the code was, the guy had just used the VB data controls and bound all data to controls.

GCollier

Alex,

I wasn't saying that most contractors don't pay their own pension/medical costs etc - in my experience most do. I'm not even saying most don't pull their weight - most seem to be "I'll work reasonably hard for my contracted hours, then I'm off regardless" type people.

My own point really is that people are miffed that they may no longer be able to carrying on with the split-dividend/brown-envelope way of working, and are simply using the big-company/small-company thing as a totally hypothetical argument, which has no relevance to their way of working in the real-world.

The people who seem to be mosted miffed with it all, are those who were guilty of the most blatant pi$$-taking. E.g. pay NO salary, shuffle share allocation between spouse and children on an annual basis to pay least tax.

Gary.

AlexM

Hi,

Gary - what you and JoeyDeacon are describing is tax evasion pure and simple. The Inland Revenue and Customs and Excise have all the investigatory powers that they need in order to bring these people to book, and they do. If you really feel strongly about it then report them and do everyone a favour.

I operate my own affairs in a totally legitimate fashion, and I'm sick of always having this sort of thing thrown in my face.

Legitimate contractors are being shafted by IR35 simply because it makes it much easier for the Inland Revenue to collect taxes if all disbursements are made by means of PAYE - Well, great, but it is costing me £1200 a month in spurious NIC payments - I probably pay more in NICs than any permanent employee in the country because I have to pay unlimited employers NIC contributions on my GROSS income, including legitimate expenses etc. This fradulent use of shell companies is simply a flimsy excuse for screwing more money out of the legitimate majority, and nothing else. Why don't HMC&E or the IR simply invesitgate suspected fraudulent returns more?.

This strikes me as being very unfair. I am actively considering looking for a permanent position simply because of the punitive taxation I am in. The differential between contract rates and a permanent salary for the type of work I do has narrowed considerably, and I can't be arsed with all of the hassle .

Joeydeacon - you're still missing the point completely. Permanent and contract employment aren't remotely comparable. Sorry if I'm mininterpreting what I'm hearing but it sounds a lot like jealousy - If you don't like not earning contract rates, then do it yourself or don't bleat on about pay differentials!. As for IR35 normalising taxation policie between permies and contractors - bollocks. Do you pay employers NICs on any legitimate expenses you incur? on training costs or health insurance? on travel expenses etc? Yeah - thought so

Regarding the skill level of most contractors there are some good and some bad, but definately more good than bad. Same goes for permies. At the end of the day, it is up to the employer to make a determination regarding 'value for money', or whether a contractor is delivering. This is a simple, everyday man management issue. For myself, I have done more than my fair share of all nighters, as have many contracted colleagues.

At the end of the day, this is still a cynical, politcally motivated stealth tax which is a sledgehammer to crack a small fraud nut.

Cheers,

Alex

polarbearit

5% of turnover for expenses maybe fine when your compay is invoicing over 100k, but when you company is billing less than half that it is much harder to continue being a limited company. I don't have any other option though. I single training course would wipe my whole allowance out. Seems unfair to me. I have expenses which are easily 10-20 % of turnover.

Seems like a tax change which affects the least well off contractors, whereas those on better money are in a much better situation to arrange IR35 friendly contracts!

Geezer

I have worked in IT for 16 years, and in that time I have worked with many, many contractors. I have to say that on the whole, they are no more skilled or knowledgeable as the permies, quite often less so, as they are unwilling to pay for training. They come in at 9, go at 5 whatever is going on, and if there is a hint of extra work, they charge you through the nose. What p1sses permies off is not what contractors earn (indeed, best of luck to them) it's the small amount of committment they give to receive such sums when the permies have to give their all. And no matter how much you protest, the holidays, pensions etc we get do not equal more than double (sometimes triple) the amount of money you get paid.

However, what they do provide is short term resource, which saves the company money on pensions, holidays etc. In my experience, they give little and expect a lot, although some of them (not many) are as hard working and helpful as anybody you would wish to meet.

I always think of them as a necessary evil!

Geezer

MarkO

If I hear one more person tell me that contractors pay less tax than permie staff, I'll bitch-slap 'em.

Income tax is precisely that, and is payable whether that income is salary or dividend. End of story.

In fact, proportionally, contractors pay more 'tax', since they pay both the employers' and employees' NI.

All you permie staff don't understand the issues, and are usually only anti-contractors because a) we're getting paid more than you are for doing the same job and b) you wish you'd thought of it (and had the guts to carry it through)....

fast bloke

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:<HR>Originally posted by MarkO:
<B>
All you permie staff don't understand the issues, and are usually only anti-contractors because a) we're getting paid more than you are for doing the same job and b) you wish you'd thought of it (and had the guts to carry it through)....[/quote]

Marko - This is the sort of attitude that makes the vast majority of permies think that contractors are over paid prima donnas.

I've been permie and contractor. I now make my money by subcontracting other contractors. I also employ permie staff. The whole game changes when you have employees. Maybe it is you who doesn't have the guts to carry something through. Hire a couple of other people. You get most from this if they are permies, cos you can sell them at the same rate and pay them less. All costs are now allowable including cars, training, pensions etc before tax. Take a normal salary from the business of 32 grand. Employ
your wife, your mother, all your kids who are over 16. Give them real jobs with real salaries. Your cost of living will be drastically reduced if your family all earn good money. At this stage you have not paid more than 22% income tax. Pay the remainder to yourself and take the high tax hit. Nothing here is illegal. I'm guessing that with your attitude you will just keep moaning about IR35 and slagging off permies.

your loss

MarkO

I leave at 5pm on the dot each night. So what? I arrive at the office at 7am each morning - 2 hour before any of the permie staff arrive - and I have a 1hr commute each way. Are you telling me I'm not committed to my job? Besides, my contract has no fixed working hours, so I would be perfectly entitled to leave at 2pm. I used to be a permie and work ridiculous hours, but for what gain? I don't turn up here every day for charity - I do it to pay the mortgage... What about you?

Besides, I'm a developer. Staying late doesn't make any difference, unless there's a problem with the production system or whatever, in which case I wouldn't have the gall to walk out. I take my position and responsibilities seriously.

I don't claim the tax back on stuff through the company - the only things I put through are my travel expenses, and computer hardware (e.g., my notebook, on which I developed software which I sell through my company). I pay my wife a salary of a few thousand (less than 5), but she doesn't work and actually does do some stuff for my company (fielding agency calls, etc). The total tax-saving is probably about £300, and it's done more to help cash-flow than to avoid tax. Hardly a ****-take, is it?

I agree that the ****-takers should be clamped down on, but there's just as many permies who take the **** (company cars for single-location office workers, etc).

How many permies would like to be in the situation I am ZERO notice, no pension, no healthcare, no employment rights at all. I also have to buy expensive liability insurance, so that if I f*ck up the my client can sue me. If that doesn't give me the right to manage my company's cashflow
and save a bit of NI (which I can then put towards paying for those things personally), what the hell does?

And regarding the comments about **** contractors, that's irrelevant - there are plenty of ****e permies 'along for the ride' out there...

JoeyDeacon

Fast Bloke - I have to agree with you that contractors seem to be over paid prima donnas. I know of 3 people who are contractors and they are always moaning about this and that

This whole contractor thing does seem to be a pretty nice grave train!! I have never really thought about it until now but anybody got any advice about how to get into it?? Let me tell you this, if I was on 100K a year the last thing I would be moaning about would be IR35!!

OK so say tomorrow I wanted to become a contractor how would I go about it?? I have 4.5 Years experience of Visual Basic and SQL server working for companies such as Shell and DHL.

On a different note my company is looking for a VB permi at the moment and we have interviewed loads of people now. They have to sit a little VB test (20 Questions) and it is amazing the amount of people who say they have a microsoft certification in VB but don't even know if the load of activate event occurs first!!

MarkO

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:<HR>Originally posted by JoeyDeacon:
This whole contractor thing does seem to be a pretty nice grave train!!<HR></BLOCKQUOTE>

Says he, a VB programmer. Try coding in a <B>real</B> language before you try and get on your high horse.

JoeyDeacon

MarkO

Good point!!

Saying that the friend I was describing earlier who is a contractor works in software testing!! Seriously how hard can that be!!

I wish good luck to all those who are fortunate enough to be contracting I just wish that they would be happy with the money they earn and not moan about IR35 etc. as this is the sort of thing that gives them a bad name.

[This message has been edited by JoeyDeacon (edited 15 March 2001).]

MarkO

Software testing can be pretty hard actually. Particularly if you have to try and run the usual cr*p that us contractors turn out...

GCollier

MarkO,

If everything you say about the way you work through your company is true, i.e. minimal expenses, small salary to wife (you don't mention a split dividend), then you'll be virtually unaffected by IR35.

Most people I've spoken to haven't been so bothered about expenses, it's the split dividend with wife/family thing that's important. Funny that nobody is mentioning that here.

Gary.

JoeyDeacon

Most contractors seem to work for the same company longer than the permi staff these days anyway!!

MarkO

This "be happy with the money we earn" lark is quite amusing. Many permies seem to roll this one out whenever IR35 is mentioned, and frankly I don't understand it.

Think of it this way. You're earning a certain amount, and paying a certain amount of tax. Assume, for a minute, that no 'brown envelope' stuff is going on, and you're adhering to the letter of the tax law and paying your dues.

Suddenly, the government says "you've been cheating the taxman, and we're going to change the rules so that you have to pay more national insurance", meaning that your net income will be cut by 15% or more. How would you feel? Whether you're earning 5k a year, 50k a year, or 150k a year (or more) you're likely to feel a bit miffed at this.

The fact is, there's no such thing as "a high enough" salary - everyone would earn more if they could. So comments along the lines of "you contractors earn enough already, so stop moaning about IR35" will be bound to be met with derision....

Oh, and as an aside, in order to counter the effects of IR35, I increased my rate by 22% last year (even though I may not fall under the legislation). I'm sure my client is really thanking New Labour for the 20-odd percent increase in it's development costs (95% of which are contractor pay)....

MarkO

GCollier - you're right, I don't have a split dividend since it is technically illegal (if I get benefit from it). Even so, because the employers' NI is uncapped (and I'm on a fairly high rate) my take-home will be cut by around 10% or so. Not the end of the world, but not insignificant.

And Joey, you're right - my only permie job was 21 months, whereas my previous contract was 24 months, and I've been in my current contract for just over 3 years!