5 ms·

The problem is that salaries in the UK are not attractive as you quickly get on the higher tax bracket. This was made worse when changes to IR35 passed and now

The problem is that salaries in the UK are not attractive as you quickly get on the higher tax bracket. This was made worse when changes to IR35 passed and now if someone works on a b2b basis is likely going to be caught by new rules and it means no more business expenses, having to pay employer's NI, apprenticeship levy etc. and no employment rights. Effective tax rate is above 50% in this case. Independent contractors were competing with companies like Infosys (of which Chancellor wife is a significant shareholder) and these changes pushed by the chancellor make independent developers less attractive for companies. In the end, especially during current situation, where it doesn't matter where you work, companies just seek talent overseas as the recent changes make whole thing too bureaucratic, expensive and the fines for non-compliance can be life changing.

obayesshelton 6y ago
This is exactly my issue! I started contracting on £x per day, a year ago they put me In-Scope of IR35 and my day rate went down by 13% due to a cost natural approach by the client. I then have to pay tax on that. Before I didn't pay myself the whole amount as I wanted to save money in the company for a rainy day! I am now thinking about moving to the UAE
- varispeed 6y ago
  This is indeed another consequence - you cannot raise capital for your company with your own work anymore. For example if you have a little start up idea you could have done some contracting and then have funds to develop it. Now you can either lend money to your company or look for an investor - it means you'll have to share your business with someone or be at mercy of banks. I can imagine this cut so many wings...
  - Nursie 6y ago
    This does seem to preclude developing a company from being a one-person thing to a bootstrapped entity in its own right. I know someone who did that around 05, it was very effective. Eventually he grew it to around 10 people, all of whom could be farmed out for contracts when the company itself wasn't quite cutting it. Perhaps a model of contractors collecting together in small groups to carry on, will work.
    - petercooper 6y ago
      Perhaps a model of contractors collecting together in small groups to carry on, will work. I've seen this happen a bit in the US, especially in the Rails consulting space. I think having loosely formed "agencies" made up of complementary partners where the sales pipeline goes through the agency is definitely a potential way forward, but seems uncommon in the UK so far. The downside is independent contractors with poor networking skills might struggle to find people to collaborate with.
      - obayesshelton 6y ago
        I love this idea! Do you have some names of agencies that do this?
        Nursie 6y ago
        Some friends and I got like 5% into building a website for this a year or so back - an analogue to a CV site where you could upload your team profile, competencies etc. As with many ideas like this, we kinda lost interest and moved on to other things. It's possible there's a gap in the market.
        petercooper 6y ago
        I don't want to point to ones I remember from back in the day in case I got their model wrong, but a current company doing something like this at scale would be https://x-team.com/ https://x-team.com/ .. I think it could work at a much smaller level though.
        obayesshelton 6y ago
        Thanks :)
lifeisstillgood 6y ago
This is frankly a problem all over (the IR35 / IT issues are true, but hell, salaries all over are ... less than one would choose if the power balance between capital and labour was more equitable) I honestly don't know how to solve it absent massive Government action, and while I generally applaud it, its unlikely to be effective / sustainable. Maybe a big trades union resurgence. Possibly a truly massive increase in the number of small (not individual) service firms.
- Nursie 6y ago
  Salaried work in the UK in general pays a pitiful amount, I agree. It has always seemed absurd to me that the returns on productive assets are taxed lower than the returns of the sweat of your brow.
- varispeed 6y ago
  Changes to IR35 add this construct of "Employment for tax purposes" which means you only pay tax like an employee (and employer), but don't have any employment rights - that includes no right to unionise.
adwww 6y ago
Hang on, you're arguing the skills shortage is because salaries are not high enough... ...and at the same time also arguing that the skills shortage is because big companies are offshoring jobs overseas to reduce their high salaries?
- gpderetta 6y ago
  Another way of saying it, there is shortage at the price point the most companies are currently willing to pay. Mind you, the rest of Europe pays even less, but now UK is less attractive for an European to move in.
- ZephyrBlu 6y ago
  I don't see how these are contradictory. If you're not getting paid enough, you're more likely to leave. If companies aren't hiring as many people locally, you're also more likely to want to go and find work elsewhere.
  - adwww 6y ago
    > you're more likely to leave Where to? Only America pays more, assuming you can get a visa, and while UAE taxes less the lifestyle there has fairly limited appeal.
- unishark 6y ago
  It makes sense that high taxes can simultaneously cause both those problems (the cost of employees goes up a lot even as salaries don't go up enough to attract workers yet), though the way they stated it was rather nonlinear.
- Nextgrid 6y ago
  I don't think this is the same as offshoring/outsourcing to the lowest bidder which obviously gives you very low quality work. This kind of offshoring works for both sides because they are offshoring to a location where the supplier (developer, etc) ends up better off (they lose less money to tax for example) and thus still provide quality work. Overall, in this case, everyone wins, except the greedy & short-sighted UK government, which I can't really sympathize with.
bloqs 6y ago
This is an excellent overview. My 140 characters version is Salary stagnation and outsourcing is still the problem
hd4 6y ago
UK developer here. Can confirm what the above poster is saying, especially: >The problem is that salaries in the UK are not attractive as you quickly get on the higher tax bracket. This was made worse when changes to IR35 passed and now if someone works on a b2b basis is likely going to be caught by new rules and it means no more business expenses, having to pay employer's NI, apprenticeship levy etc. and no employment rights. I was directly affected by this and I'm looking to leave as soon as possible.
- deleted 6y ago
  [deleted]
- yrgulation 6y ago
  Leave where? In the EU salaries are even lower. As a contractor in the UK, even with IR35, you can earn after tax well above 7kGBP a month. I earn, without bragging, 10k GBP a month, after tax - although I am not inside IR35. Others tell me they are simply increasing their daily rate to cover for IR35. And no to mention benefits as a software engineer: bonuses, shares, etc if you are permanents, thing rarely met in continental Europe.
  - Nursie 6y ago
    > Leave where? US, Canada, Australia. All have higher salaries for software people, though not all as good as London finance contracting has been. I earn around the same level you do and am leaving for Australia sometime in the next few months. I don't expect to make anything close to my current contracting income, though I do plan to start a consulting company over there at some point.
    - yrgulation 6y ago
      "Canada, Australia. All have higher salaries for software people," - I was under the same false impression that either of the two countries have better pay. Turned out to be quite false, at least Canada has significantly lower pay, and far behind tech. Testament to this is the fact that I got a work visa for CA and turned it down once I did my due diligence. Brexit "refugees" that went to Canada share the same impression. However, both CA and AU have other benefits. While pay is lower, the standard of living in my view is much higher and are much safer. For those two reason I think they might be a good choice, but not pay. Correct me if I am wrong, as I am still considering a decent alternative to the UK - preferably somewhere safer and with better quality services.
Nursie 6y ago
I think the contracting/consulting market is going to fragment into 'genuine' consultancy and people who are effectively temps. The temp end of the market is going to need to push hard to get the reward level back to where it has been over the last few years, because of these changes. Honestly I think the real solution to the issue is to tax gains from assets (i.e. dividends etc) higher than salaries, rather than lower, then this whole thing could go away.
- varispeed 6y ago
  The rich mostly pay themselves in dividends and lower tax on that is a sacred thing for them. This is another reason why they preferred to go with IR35 and destroying a thriving sector rather than making the NI payable on dividends. https://www.independent.co.uk/news/uk/politics/jacob-rees-mogg-conservative-mp-north-east-somerset-capital-management-investment-firm-belgravia-house-commons-parliament-eurosceptic-brexit-moggmentum-zero-hours-contracts-benefits-a7902951.html https://www.independent.co.uk/news/uk/politics/jacob-rees-mo...
  - Nursie 6y ago
    Absolutely, it's crazy that they get away with it really.
petercooper 6y ago
I'm not very familiar with IR35 as I've always been very multi-client focused but does this now mean a "contractor" earning >100k will be paying 40% income tax + 20% loss of personal allowance + 2% class 1 NIC and 13.8% employer NICs marginally in the 120-124k range? That's like 75% tax. (I know people in that position would be dumping 40k into their pensions, etc. I'm just speaking hypothetically or for those earning, say, 180k-200k somehow.)

obayesshelton 6y ago

This is exactly my issue! I started contracting on £x per day, a year ago they put me In-Scope of IR35 and my day rate went down by 13% due to a cost natural approach by the client. I then have to pay tax on that. Before I didn't pay myself the whole amount as I wanted to save money in the company for a rainy day! I am now thinking about moving to the UAE

varispeed 6y ago
This is indeed another consequence - you cannot raise capital for your company with your own work anymore. For example if you have a little start up idea you could have done some contracting and then have funds to develop it. Now you can either lend money to your company or look for an investor - it means you'll have to share your business with someone or be at mercy of banks. I can imagine this cut so many wings...
- Nursie 6y ago
  This does seem to preclude developing a company from being a one-person thing to a bootstrapped entity in its own right. I know someone who did that around 05, it was very effective. Eventually he grew it to around 10 people, all of whom could be farmed out for contracts when the company itself wasn't quite cutting it. Perhaps a model of contractors collecting together in small groups to carry on, will work.
  - petercooper 6y ago
    Perhaps a model of contractors collecting together in small groups to carry on, will work. I've seen this happen a bit in the US, especially in the Rails consulting space. I think having loosely formed "agencies" made up of complementary partners where the sales pipeline goes through the agency is definitely a potential way forward, but seems uncommon in the UK so far. The downside is independent contractors with poor networking skills might struggle to find people to collaborate with.
    - obayesshelton 6y ago
      I love this idea! Do you have some names of agencies that do this?
      - Nursie 6y ago
        Some friends and I got like 5% into building a website for this a year or so back - an analogue to a CV site where you could upload your team profile, competencies etc. As with many ideas like this, we kinda lost interest and moved on to other things. It's possible there's a gap in the market.
      - petercooper 6y ago
        I don't want to point to ones I remember from back in the day in case I got their model wrong, but a current company doing something like this at scale would be https://x-team.com/ https://x-team.com/ .. I think it could work at a much smaller level though.
        obayesshelton 6y ago
        Thanks :)

lifeisstillgood 6y ago

This is frankly a problem all over (the IR35 / IT issues are true, but hell, salaries all over are ... less than one would choose if the power balance between capital and labour was more equitable) I honestly don't know how to solve it absent massive Government action, and while I generally applaud it, its unlikely to be effective / sustainable. Maybe a big trades union resurgence. Possibly a truly massive increase in the number of small (not individual) service firms.

Nursie 6y ago
Salaried work in the UK in general pays a pitiful amount, I agree. It has always seemed absurd to me that the returns on productive assets are taxed lower than the returns of the sweat of your brow.
varispeed 6y ago
Changes to IR35 add this construct of "Employment for tax purposes" which means you only pay tax like an employee (and employer), but don't have any employment rights - that includes no right to unionise.

adwww 6y ago

Hang on, you're arguing the skills shortage is because salaries are not high enough... ...and at the same time also arguing that the skills shortage is because big companies are offshoring jobs overseas to reduce their high salaries?

gpderetta 6y ago
Another way of saying it, there is shortage at the price point the most companies are currently willing to pay. Mind you, the rest of Europe pays even less, but now UK is less attractive for an European to move in.
ZephyrBlu 6y ago
I don't see how these are contradictory. If you're not getting paid enough, you're more likely to leave. If companies aren't hiring as many people locally, you're also more likely to want to go and find work elsewhere.
- adwww 6y ago
  > you're more likely to leave Where to? Only America pays more, assuming you can get a visa, and while UAE taxes less the lifestyle there has fairly limited appeal.
unishark 6y ago
It makes sense that high taxes can simultaneously cause both those problems (the cost of employees goes up a lot even as salaries don't go up enough to attract workers yet), though the way they stated it was rather nonlinear.
Nextgrid 6y ago
I don't think this is the same as offshoring/outsourcing to the lowest bidder which obviously gives you very low quality work. This kind of offshoring works for both sides because they are offshoring to a location where the supplier (developer, etc) ends up better off (they lose less money to tax for example) and thus still provide quality work. Overall, in this case, everyone wins, except the greedy & short-sighted UK government, which I can't really sympathize with.

bloqs 6y ago

This is an excellent overview. My 140 characters version is Salary stagnation and outsourcing is still the problem

hd4 6y ago

UK developer here. Can confirm what the above poster is saying, especially: >The problem is that salaries in the UK are not attractive as you quickly get on the higher tax bracket. This was made worse when changes to IR35 passed and now if someone works on a b2b basis is likely going to be caught by new rules and it means no more business expenses, having to pay employer's NI, apprenticeship levy etc. and no employment rights. I was directly affected by this and I'm looking to leave as soon as possible.

deleted 6y ago
[deleted]
yrgulation 6y ago
Leave where? In the EU salaries are even lower. As a contractor in the UK, even with IR35, you can earn after tax well above 7kGBP a month. I earn, without bragging, 10k GBP a month, after tax - although I am not inside IR35. Others tell me they are simply increasing their daily rate to cover for IR35. And no to mention benefits as a software engineer: bonuses, shares, etc if you are permanents, thing rarely met in continental Europe.
- Nursie 6y ago
  > Leave where? US, Canada, Australia. All have higher salaries for software people, though not all as good as London finance contracting has been. I earn around the same level you do and am leaving for Australia sometime in the next few months. I don't expect to make anything close to my current contracting income, though I do plan to start a consulting company over there at some point.
  - yrgulation 6y ago
    "Canada, Australia. All have higher salaries for software people," - I was under the same false impression that either of the two countries have better pay. Turned out to be quite false, at least Canada has significantly lower pay, and far behind tech. Testament to this is the fact that I got a work visa for CA and turned it down once I did my due diligence. Brexit "refugees" that went to Canada share the same impression. However, both CA and AU have other benefits. While pay is lower, the standard of living in my view is much higher and are much safer. For those two reason I think they might be a good choice, but not pay. Correct me if I am wrong, as I am still considering a decent alternative to the UK - preferably somewhere safer and with better quality services.

Nursie 6y ago

I think the contracting/consulting market is going to fragment into 'genuine' consultancy and people who are effectively temps. The temp end of the market is going to need to push hard to get the reward level back to where it has been over the last few years, because of these changes. Honestly I think the real solution to the issue is to tax gains from assets (i.e. dividends etc) higher than salaries, rather than lower, then this whole thing could go away.

varispeed 6y ago
The rich mostly pay themselves in dividends and lower tax on that is a sacred thing for them. This is another reason why they preferred to go with IR35 and destroying a thriving sector rather than making the NI payable on dividends. https://www.independent.co.uk/news/uk/politics/jacob-rees-mogg-conservative-mp-north-east-somerset-capital-management-investment-firm-belgravia-house-commons-parliament-eurosceptic-brexit-moggmentum-zero-hours-contracts-benefits-a7902951.html https://www.independent.co.uk/news/uk/politics/jacob-rees-mo...
- Nursie 6y ago
  Absolutely, it's crazy that they get away with it really.

petercooper 6y ago

I'm not very familiar with IR35 as I've always been very multi-client focused but does this now mean a "contractor" earning >100k will be paying 40% income tax + 20% loss of personal allowance + 2% class 1 NIC and 13.8% employer NICs marginally in the 120-124k range? That's like 75% tax. (I know people in that position would be dumping 40k into their pensions, etc. I'm just speaking hypothetically or for those earning, say, 180k-200k somehow.)