4 ms·

Caught by IR35 implies having to pay the same tax as everyone else? How unfortunate.

LatteLazy 5y ago
Actually you have to pay a much higher rate. I don't get how people with even minimal maths skills get caught by the lie that contractors don't pay their tax. We do, I paid more as a percentage and way more in cash terms than as a permie.
- youngtaff 5y ago
  It's not really that different when you consider the impact of employers NI How different is your gross as a permit + employers NI, versus what your company turned over as a contractor?
  - Silhouette 5y ago
    If you're going to consider employer's NI, are you also going to factor in pension contributions, paid time off, and other employment benefits that independents generally don't receive? If you go back a few years, the financial advantage of paying via salary + dividends in terms of reduced NI payments roughly cancelled out the direct costs of having no employment perks, particularly paid time off. The difference varied slightly depending on the level of salary/turnover as the relevant thresholds were all different, but there wouldn't have been much in it for most people. Now that independents also get hit with either dividend taxes or IR35 arrangements, while employees receive additional benefits notably including significant employer pension contributions, the balance is heavily tilted towards an employment relationship in purely financial terms if you're comparing direct employee salary with freelance/contract business revenue. In theory, market forces should have pushed freelance and contract rates up to compensate for those changes, but in practice the opposite has happened. Because the IR35 changes have driven an industry-wide shift towards blanket inside-IR35 or umbrella policies at many larger clients all at the same time, they have been able to push their rates down to help offset their own extra costs (or, in some cases, simply stopped taking on independent labour altogether), and in one recent survey the average independent had actually reduced their rate this year. If we're looking at the overall financial situation for employees vs. (genuine) independents and not limiting the discussion to tax/NI specifically, you also have to look at flexibility, particularly issues like business expenses and the ability to spread your personal income over time if your business revenues are irregular. These are important aspects of flexible work that have also been damaged by the recent IR35 changes and will often end up costing a legitimate freelancer or contractor more now.
  - LatteLazy 5y ago
    So there are 2 issues with this. The first is that the contractor isn't evading any tax, maybe the client are, but then you should go after the client right? Not just hit the contractor even harder... The second is whether you should include NI in you calculations. My default might be yes, but given contractors (and clients) get none of the benefits of paying NI (no state pension, no sick pay, no covid payments!), is that actually fair? I personally think the issue here is that we've decided to tax payments from capital (dividends etc) at a much lower rate than those from labour. But it's actually not trivial to decide whether a payment is from labour or capital. So now we're trying to "equalise" them to make it fair between employees and contractors. But unless we're prepared to equalise all other treatment of contractors (make us permanent, give us maternity leave, covid payments etc) we're not actually making anything fair. I don't actually want to be an employee. But if we're making that illegal, that's that, but then I'm owed 101 benefits and ir35 is strangely silent on those...
    - youngtaff 5y ago
      We do get the benefits of paying NI - SSP, state pension etc. (even without paying NI if the salary level is chosen appropriately) In the case of contractors are dividends really payment from capital (accounting wise yet, reality no because most take an unrealistic salary) The dividend tax essentially compensates for the loss of Employees NI (but not employers) I'd like to see income tax and NI merged, so unearned income (e.g. buy to let rent) and earned income are treated the same way. No-one's making freelancing illegal, it's possible to freelance outside IR35, you just need to make sure you're not behaving like an employee (and yes that depends on the clients you work for too)
intricatedetail 5y ago
You pay employer and employee tax, but you don't get any of benefits. For example if your employer buy a laptop for employee they can deduct it from tax, if you as your own employer buy a laptop, you can't deduct it when you are in scope.

Actually you have to pay a much higher rate. I don't get how people with even minimal maths skills get caught by the lie that contractors don't pay their tax. We do, I paid more as a percentage and way more in cash terms than as a permie.

youngtaff 5y ago
It's not really that different when you consider the impact of employers NI How different is your gross as a permit + employers NI, versus what your company turned over as a contractor?
- Silhouette 5y ago
  If you're going to consider employer's NI, are you also going to factor in pension contributions, paid time off, and other employment benefits that independents generally don't receive? If you go back a few years, the financial advantage of paying via salary + dividends in terms of reduced NI payments roughly cancelled out the direct costs of having no employment perks, particularly paid time off. The difference varied slightly depending on the level of salary/turnover as the relevant thresholds were all different, but there wouldn't have been much in it for most people. Now that independents also get hit with either dividend taxes or IR35 arrangements, while employees receive additional benefits notably including significant employer pension contributions, the balance is heavily tilted towards an employment relationship in purely financial terms if you're comparing direct employee salary with freelance/contract business revenue. In theory, market forces should have pushed freelance and contract rates up to compensate for those changes, but in practice the opposite has happened. Because the IR35 changes have driven an industry-wide shift towards blanket inside-IR35 or umbrella policies at many larger clients all at the same time, they have been able to push their rates down to help offset their own extra costs (or, in some cases, simply stopped taking on independent labour altogether), and in one recent survey the average independent had actually reduced their rate this year. If we're looking at the overall financial situation for employees vs. (genuine) independents and not limiting the discussion to tax/NI specifically, you also have to look at flexibility, particularly issues like business expenses and the ability to spread your personal income over time if your business revenues are irregular. These are important aspects of flexible work that have also been damaged by the recent IR35 changes and will often end up costing a legitimate freelancer or contractor more now.
- LatteLazy 5y ago
  So there are 2 issues with this. The first is that the contractor isn't evading any tax, maybe the client are, but then you should go after the client right? Not just hit the contractor even harder... The second is whether you should include NI in you calculations. My default might be yes, but given contractors (and clients) get none of the benefits of paying NI (no state pension, no sick pay, no covid payments!), is that actually fair? I personally think the issue here is that we've decided to tax payments from capital (dividends etc) at a much lower rate than those from labour. But it's actually not trivial to decide whether a payment is from labour or capital. So now we're trying to "equalise" them to make it fair between employees and contractors. But unless we're prepared to equalise all other treatment of contractors (make us permanent, give us maternity leave, covid payments etc) we're not actually making anything fair. I don't actually want to be an employee. But if we're making that illegal, that's that, but then I'm owed 101 benefits and ir35 is strangely silent on those...
  - youngtaff 5y ago
    We do get the benefits of paying NI - SSP, state pension etc. (even without paying NI if the salary level is chosen appropriately) In the case of contractors are dividends really payment from capital (accounting wise yet, reality no because most take an unrealistic salary) The dividend tax essentially compensates for the loss of Employees NI (but not employers) I'd like to see income tax and NI merged, so unearned income (e.g. buy to let rent) and earned income are treated the same way. No-one's making freelancing illegal, it's possible to freelance outside IR35, you just need to make sure you're not behaving like an employee (and yes that depends on the clients you work for too)

intricatedetail 5y ago

You pay employer and employee tax, but you don't get any of benefits. For example if your employer buy a laptop for employee they can deduct it from tax, if you as your own employer buy a laptop, you can't deduct it when you are in scope.