Contractors: IR35 & general discussion

[Gazzab]

Countdown said:

Guvernator said:

What I'm concerned about is the awful legislation that makes determination so difficult, the wild west umbrella industry that has sprung up or why if I'm deemed to be an employee inside IR35 do I have to pay both employer and employee's NI? These are the questions I want answered, not whether I'm entitled to statuary holiday\sick pay or whether I can join a union.

Apologies if I'm stating the obvious but you would simply add the Ers NI to your daily rate, just as you would the Apprentice Levy, the Employers pension contribution and any other charges that your Umbrella has to pay on your behalf.

Any Employer who insists that the role is "inside" should be aware that your daily rate will encompass all these additional costs. They can get around it by

1. Stating that the role is "outside"; or
2. Taking you on as an employee (which won't actually reduce their costs but might help them understand that it's not YOU that's keeping the money)

For me the clients won’t stand the rate increase (actually I have seen rates drop significantly for what I do regardless of inside / outside), I don’t want to be a pseudo employee ie treated as a contractor in most respects still but not really a perm, inside roles won’t allow my expenses to be claimed etc etc. So I have gone perm as the market is knackered.

[Blown2CV]

if you're on £1000 a day then employers' NI might end up being £2000 a month. So in order to compensate for that, you'd need to add roughly 20% to your daily rate. That's quite an amount to negotiate. Most negotiations would enter assuming you had already accounted for all your overheads and margin you want etc.

[UpTheIron]

Current contract (outside IR35) ends imminently and I'm planning a long break, potentially permanently.

Have been approached by a FinServ Co that only engage via an umbrella these days despite acknowledging the issues it causes them finding talent.

As I'm in the lucky position of not needing to take the work I pushed back and asked them to up the rate to cover ErNI and the apprenticeship levy. They admitted to that it had taken them a while but they now understand the issue and subject to budget signoff it looks like they will play ball.

The headache with all of this is that the devil is in the detail and catch all legislation has some unintended consequences... low paid gig workers along the lines of Uber, Deliveroo etc need some protection, disguised employees need to be engaged correctly for the benefit of both sides and finally genuine contractors need to be able to operate as small businesses or be otherwise compensated for the risk.

The current setup has driven lots of organizations to refuse to use Ltd Company contractors meaning they lose out.

[Olivera]

Guvernator said:

Also adding it onto your rate still doesn't answer the basic question, if I am now deemed an employee, why am I paying employers NI? Permanent employees don't pay Ers NI, why am I treated differently? No one seems to be willing to answer this basic question.

The answer sadly is - your not paying the NI, your employer (the Umbrella company) is. The headline 'day rate' amount is simply what the Umbrella company gets paid from the client.

The pertinent question is - why does HMRC consider an extremely artificial vehicle such as an Umbrella company as a normal employer, and the worker as a normal employee. This has always seemed to me a very tenuous situation, that only flies because HMRC collect full PAYE tax.

[Guvernator]

Blown2CV said:

if you're on £1000 a day then employers' NI might end up being £2000 a month. So in order to compensate for that, you'd need to add roughly 20% to your daily rate. That's quite an amount to negotiate. Most negotiations would enter assuming you had already accounted for all your overheads and margin you want etc.

Quite and I think this is the crux of why IR35 was mainly invented in the first place. Big hole is in the pensions pot, Government panics and wants to claw that back somehow and realises lots of contractors are barely paying any NI and neither are the corporations for those contractors.

In comes IR35 to save the day but the big corporations aren't happy, they've got used to not paying NI on contractors for years and don't want to start now so what's the solution? Easy, make the contractor pay it, Government is happy because it now gets both components of NI from thousands of contractors, Corporations are happy because it doesn't cost them any more in tax, guess whose got shafted?

I'm really surprised it hasn't gone to court till now because there really is no rational explanation as to why an employee should be paying both parts of NI other than what I've stated above.

[Blown2CV]

yea i think openly the reason for IR35 was NI revenue.

I've always assumed, if you're outside IR35 then the company provides services and you work for the company, so the company pays the employers' NI and you pay the employee's NI. If you are inside then you are not employed by a service provider and you are an individual who should only pay employee's NI. The only reason you end up paying both is the umbrellas cry that they have no money to fund it, and so they take it from you. If they didn't force you to pay it, they would just up their fees to cover it. So, you're fked either way.

[Guvernator]

Blown2CV said:

yea i think openly the reason for IR35 was NI revenue.

I've always assumed, if you're outside IR35 then the company provides services and you work for the company, so the company pays the employers' NI and you pay the employee's NI. If you are inside then you are not employed by a service provider and you are an individual who should only pay employee's NI. The only reason you end up paying both is the umbrellas cry that they have no money to fund it, and so they take it from you. If they didn't force you to pay it, they would just up their fees to cover it. So, you're fked either way.

Technically although the umbrella company is your employee, they actually aren't, as posted above it's an artificial construct and this is where the problem lies. The legislation has forced this weird shadow employment vehicle into existence. Your end client is your employee, they give you the work, they interact with you on it's delivery, the umbrella is merely a payment intermediary.

The end client should pay your Ers NI but they don't, most just wrap it into your day rate and call it quits as it's nice and easy for them. Very few even acknowledge the problem. Luckily my current client do acknowledge the problem and pay extra, over and above the day rate to cover employments costs but I know this certainly isn't the norm.

[Countdown]

Guvernator said:

I've covered this point in this thread before but you can't just add Ers NI to your rate, most agencies won't give you that luxury. The better agencies\employers may give your rate a bump to cover what they are calling employment costs but that's by no means a given.

If you can't add it on then your actual day rate is basically your nominal day rate minus employer costs. i.e. you're taking a pay cut.

To be honest I don't think your position automatically applies to all Contractors on "inside" roles. I know that our Interim CTO said to my boss "X is my rate if you pay me via PSC, X+agency commission + employer costs is my rate if you want me to go via an Umbrella". It depends on what the Contractor is offering and how desperate the Client is.

Compare and contrast with Part-qualified Finance temps where we can say to the Agency "we're paying £X, please send us CVs of anybody who is inetrested".

Guvernator said:

Also adding it onto your rate still doesn't answer the basic question, if I am now deemed an employee, why am I paying employers NI? Permanent employees don't pay Ers NI, why am I treated differently? No one seems to be willing to answer this basic question.

You're not paying Ers NI/Superann, your Umbrella is. You're an employee of the Umbrella Company. That's why they deduct tax, employees NI, and employees pension from your gross pay. (Strictly speaking I should have said that the Umbrella should add on the employer oncosts to their charge-out rate)

[u6dw4]

Deep Thought said:

Countdown said:

I don't think most clients/employers have a "set £/day" figure. it really depends on the skills/experience being offered by the Employee/Contractor and how desperate the Client / Employer is. The employer will have a broad range of daily rate in mind but they may get 50 suitable applicants (the cheapest asking £11.44 per hour) or they only get one applicant who wants £5,000/day. Those are extreme examples but, just as with a normal Employee offer there is scope for negotiation.

IME they have a price band they expect to pay.

They may be able to go to that price point but thats it. It'll have been costed in to the capex that went for approval.

Certainly thats my experience, being usually brought in as part of a project team.

Any job roles i see have a day rate against them so it would be pretty daft someone going in asking for £11.44 an hour.

If i was contacted for an agency and told them £1200 a day and the end client was only willing to pay £800 a day, i doubt i'd even get put forward - nor would i want to be.

Other peoples experiences may differ, of course

Edited by Deep Thought on Saturday 25th May 18:49

i'm outside the main areas for my industry (live in the countryside) so competing for the people who live locally (in cities) , and will accept umbrella. but it reduces flexibility, as many people will not move as they have either family/house etc and accept a lower rate locally, umbrella really restricts that.


A lot of discussion is on tax, but it prevents people from moving around to get the best income. or you have to move your whole life to that area.

Edited by u6dw4 on Tuesday 28th May 20:21

[wombleh]

I’d be quite supportive if the position was that anyone inside IR35 obtains full employment rights from the end client, provided that those operating outside are left out of it.

[Blown2CV]

Guvernator said:

Blown2CV said:

yea i think openly the reason for IR35 was NI revenue.

I've always assumed, if you're outside IR35 then the company provides services and you work for the company, so the company pays the employers' NI and you pay the employee's NI. If you are inside then you are not employed by a service provider and you are an individual who should only pay employee's NI. The only reason you end up paying both is the umbrellas cry that they have no money to fund it, and so they take it from you. If they didn't force you to pay it, they would just up their fees to cover it. So, you're fked either way.

Technically although the umbrella company is your employee, they actually aren't, as posted above it's an artificial construct and this is where the problem lies. The legislation has forced this weird shadow employment vehicle into existence. Your end client is your employee, they give you the work, they interact with you on it's delivery, the umbrella is merely a payment intermediary.

The end client should pay your Ers NI but they don't, most just wrap it into your day rate and call it quits as it's nice and easy for them. Very few even acknowledge the problem. Luckily my current client do acknowledge the problem and pay extra, over and above the day rate to cover employments costs but I know this certainly isn't the norm.

in a way it kind of doesn't matter as the amount of money is all dictated by the end client and what they are prepared to pay. Which party on down the line between you and your take home who pays what tax etc doesn't really affect what you end up with.

The only way you might stand to benefit as a contractor is if the government decides to reduce what tax is due for this arrangement, not who pays it.

[Blown2CV]

wombleh said:

I’d be quite supportive if the position was that anyone inside IR35 obtains full employment rights from the end client, provided that those operating outside are left out of it.

you have whatever employment rights your own Ltd company chooses to give you.

[wombleh]

Blown2CV said:

wombleh said:

I’d be quite supportive if the position was that anyone inside IR35 obtains full employment rights from the end client, provided that those operating outside are left out of it.

you have whatever employment rights your own Ltd company chooses to give you.

Yes, I think that would be a nice clean way to do it. The likes of the taxi drivers/deliveroo/etc who should be given employment rights would get them, but allows independent freelancers to crack on and decide their own setup.

It would also force end clients to be more realistic about things, they can have blanket inside positions if they want, but then they end up with just really expensive staff so they'd be better off either engaging contractors on an outside basis for specific bits of work, hiring temps but only when it is genuinely temporary, or actually hiring staff and looking after them properly.

Edited by wombleh on Wednesday 29th May 13:09

[Countdown]

wombleh said:

It would also force end clients to be more realistic about things, they can have blanket inside positions if they want, but then they end up with just really expensive staff so they'd be better off either engaging contractors on an outside basis for specific bits of work, hiring temps but only when it is genuinely temporary, or actually hiring staff and looking after them properly.

It really is strange why some Employers are making "blanket inside" rulings for roles that are clearly "outside" when they know full well that its going to cost them significantly more to fill the role.

[Deep Thought]

Countdown said:

wombleh said:

It would also force end clients to be more realistic about things, they can have blanket inside positions if they want, but then they end up with just really expensive staff so they'd be better off either engaging contractors on an outside basis for specific bits of work, hiring temps but only when it is genuinely temporary, or actually hiring staff and looking after them properly.

It really is strange why some Employers are making "blanket inside" rulings for roles that are clearly "outside" when they know full well that its going to cost them significantly more to fill the role.

I think its a case of the legal teams are making decisions based on perceived risks and rolling out a blanket policy which the rest of the company must comply with irrespective.

[Blown2CV]

often the whole topic of workers' rights is undermined by the fact that as director and controller of your own company you can award you the employee any manner of benefits and rights that you would actually want to have, but if you don't want to pay for it because it reduces your take home then this kind of suggests too much of blurred line between 'you' the company and you the individual. In any case it's fine to not want to pay for these things, but the issue then comes when you want another entity to pay for it because you the individual feels you are owed it (just not by you the company...).

[theboss]

Deep Thought said:

Countdown said:

wombleh said:

It would also force end clients to be more realistic about things, they can have blanket inside positions if they want, but then they end up with just really expensive staff so they'd be better off either engaging contractors on an outside basis for specific bits of work, hiring temps but only when it is genuinely temporary, or actually hiring staff and looking after them properly.

It really is strange why some Employers are making "blanket inside" rulings for roles that are clearly "outside" when they know full well that its going to cost them significantly more to fill the role.

I think its a case of the legal teams are making decisions based on perceived risks and rolling out a blanket policy which the rest of the company must comply with irrespective.

Some of the PAYE contracts I've seen have been so far removed from IR35 its ridiculous.

Luckily I haven't had to bother with one yet.

[Gazzab]

Countdown said:

wombleh said:

It would also force end clients to be more realistic about things, they can have blanket inside positions if they want, but then they end up with just really expensive staff so they'd be better off either engaging contractors on an outside basis for specific bits of work, hiring temps but only when it is genuinely temporary, or actually hiring staff and looking after them properly.

It really is strange why some Employers are making "blanket inside" rulings for roles that are clearly "outside" when they know full well that its going to cost them significantly more to fill the role.

They aren’t blanket inside. They aren’t inside or outside. They are just fixed term employment / temp work. Why does an inside contract cost them more than outside? Surely all the additional costs are for the ‘temp’ to cover ?

[Olivera]

Countdown said:

It really is strange why some Employers are making "blanket inside" rulings for roles that are clearly "outside" when they know full well that its going to cost them significantly more to fill the role.

IR35 is (many would say deliberately) vague and onerous on the end client. Even if a role is clearly outside they still need to:

1) Perform the IR35 assessment, possibly involving multiple departments (HR, Legal etc)
2) Be financially on the hook for getting the determination wrong
3) Have a dispute process if the worker is in disagreement with the determination
4) Periodically review the determination to see if the assessment is still accurate
5) Have an even bigger ball ache if the role is deemed inside (note truly inside IR35 not umbrella), but more likely just binning the role off

IR35 is now a quagmire that most clients don't want to get involved with.

[Deep Thought]

Gazzab said:

They aren’t blanket inside. They aren’t inside or outside. They are just fixed term employment / temp work. Why does an inside contract cost them more than outside? Surely all the additional costs are for the ‘temp’ to cover ?

Because they invariably have to offer a notably higher rate if its inside / temp work to offset the Employers NI, Apprenticeship Levy and the higher personal taxation to offset too.