6 ms·

European permanent salaries have been coming down. UK contractors take home less now than they did 5 years ago due to taxation changes (IR35). The tax changes

European permanent salaries have been coming down. UK contractors take home less now than they did 5 years ago due to taxation changes (IR35). The tax changes have also made the market a bit strange where rates are still advertised at £500 a day even though, contractor takes home significantly less money. These have not gone up inline.

jheriko 4y ago
* dishonest and ethically corrupt contractors now take home less thanks to IR35. for the rest of us, it was a non-event.
- badpun 4y ago
  Let him who is without sin cast the first stone.
  - Silhouette 4y ago
    There are plenty of people working as contractors or freelancers in the UK who are without sin in this respect. Not everyone - or even most people - working independently is trying to evade tax. In fact financially most people would be better off as employees now if you directly compare salary with contract rates as if they meant the same thing. The big advantages of contracting and freelancing are about flexibility and being able to price on value and not according to whatever trends are happening in the employment market.
    - varispeed 4y ago
      Independent contractors where not doing anything different than larger agencies. Same service, just with more attractive pricing. The difference between a small business and agency is that agency can actually afford to properly avoid paying tax. The taxes have been changed anyway, so the mythical small salary + dividend, does not offer meaningful advantage any more when it comes to tax. The real problem is that IR35 removes profit from the company and the company has no way of offsetting legitimate business costs against tax (like your office, accountant, insurance, tools, software etc.) and you also can't retain part of the invoice and taking lower salary and dividend to have a cushion for the times out of clients or when you want to build capital for a start up idea. It has completely killed entrepreneurship. It means less competition, less jobs and smaller growth of the economy. Not sure how is that a good idea.
      - Silhouette 4y ago
        Some "contractors" were definitely disguised employees so I have some limited sympathy with the original intent behind IR35. But the baby was thrown out with the bath water and then they knocked down the bathroom and half of the house for good measure. As you say that has had a devastating effect on the independent and entrepreneurial sectors in several industries including tech.
- varispeed 4y ago
  That's what you would think, if you couldn't reason beyond one or two variables. It has just become more expensive to hire skilled workers that were freelancing. This means the budget for permanent employees had to be culled. So while you laugh out of envy, you will notice that your raise or bonus will not go ahead. Companies also learn that the changed IR35 lets them decouple themselves from the responsibilities of an employer and they can no longer worry about unions if they move all their employees (except the core ones) to Umbrellas. The fire and re-hire schemes are getting more common. My friend was terminated this year and was given an opportunity to come back through an agency and an umbrella. Of course a slight pay cut and no more career path within the company he worked at.
- sdnas211 4y ago
  Being inside IR35 I now take home less pay, have less flexibility, and I pay less tax (because rates have gone down across the board without the upward pressure that existed in the old system). Who wins? Only my employer.
lol768 4y ago
> UK contractors take home less now than they did 5 years ago due to taxation changes (IR35). The way I've seen this go with companies that care about their contractor workforce is that assignments and their working practices are thoroughly checked to ensure they remain outside IR35, so the take-home is just as good as it used to be. Some contracts I've seen involve a liability shift clause from the agency/client to the contractor's Ltd co - and the client will often insist that you have fee-payer/agency IR35 insurance in place to protect the supply chain (Kingsbridge sell this sort of product) if such a clause is in place. You need to be in an in-demand role and present enough value to be able to demand this though and avoid blanket 'inside' determinations. Of course, if you continue supplying small companies, it remains the contractor's liability.
- Silhouette 4y ago
  Some contracts I've seen involve a liability shift clause from the agency/client to the contractor's Ltd co - and the client will often insist that you have fee-payer/agency IR35 insurance in place to protect the supply chain (Kingsbridge sell this sort of product) if such a clause is in place. Yes that's definitely happening. However this practice is on the radar of the relevant authorities and hasn't yet been tested in court/tribunal settings. It's clearly trying to circumvent the spirit of the rules by shifting responsibility that is now explicitly intended to rest with the client or intermediaries onto the contractor themselves. That may be unfair particularly if the client or intermediaries are also writing the contract and specifying the required working arrangements for an engagement as is often the case for contract work. It seems likely that a test case will happen before long. The resulting decision may be of the form "LOL nice try Mr Agency now pay up". As with so much in this area the real problem is that no-one knows for sure. That creates a chilling effect across the whole industry and of course the larger parties with the bigger legal budgets have a natural advantage there.
  - lol768 4y ago
    I don't like it, and it's clearly not within the spirit of the rules (I'd rather the agency/end-client just paid Qdos for their own fee-payer insurance) but if it just creates a civil liability, I'm not sure I can see why it wouldn't be enforceable. The agency would have to pay up first, but then could presumably pursue the Ltd co afterwards.
thorin 4y ago
Ironically, the long time contractors who work at Inland Revenue (tax office) in Telford (possibly though another company) have largely been deemed outside IR35 with a special exception from HM Gov, as otherwise it would be difficult to source contractors! I have a number of ex colleagues who've been in and out of there over the years.
- ivvve 4y ago
  What's the stack at Inland Revenue? Must be something pretty old school...
  - thorin 4y ago
    They were mainly manual testers, which might tell you enough! I wouldn't be surprised if there was some Oracle database stuff given what we've discussed together in the past.
Silhouette 4y ago
UK contractors take home less now than they did 5 years ago due to taxation changes (IR35). It's a bit more complicated than that. The tax rules themselves haven't actually changed. What did change was who was responsible for deciding whether an engagement was caught by IR35 or not and was also liable to pay for the big tax shortfall if they were later found to have made the wrong decision. It used to be the contractor themselves who determined the status. Now it depends on the situation but in many cases it will be the client. That has swung the needle from determinations often being too optimistic (some contractors claimed to be outside when they really weren't and hoped to get away with paying less tax than they should) to too pessimistic (risk-averse big clients aren't always assessing engagements properly and instead set blanket policies that put everyone inside even when they shouldn't be). Neither situation is good for the contracting market and neither is what the tax rules say should happen. Both are the fault of successive governments for using such ambiguous rules about such an important tax question and making such poor provision for honest participants who want to get on with the job to know they're safe and doing the right thing as far as their tax obligations are concerned. For genuine contractors who are working with decent clients and obviously aren't disguised employees the rules haven't changed and neither have the tax obligations. But yes there are some clients who just throw everything inside IR35 as policy and also want to keep the same headline rates as before. Contractors working with those clients will have taken quite a hit. The solution is not to work with bad clients who try to dump their obligations on you!
- varispeed 4y ago
  > For genuine contractors who are working with decent clients and obviously aren't disguised employees the rules haven't changed and neither have the tax obligations. The problem is that whether someone is genuine or not is no longer relevant, because you may be genuine, but risk averse client says you are not and there is nothing you can do about it. Every single genuine contractor I know now works in-scope of IR35. They pay their business costs out of their deemed salary, which is insane. > The solution is not to work with bad clients who try to dump their obligations on you! That's not a solution if the pool of "good" clients is getting smaller and smaller. If you now have much longer downtime because it is much more difficult to find a "good" client - say when it used to take a couple of weeks or even days, now it takes months - it makes the business no longer viable.
mmarq 4y ago
European salaries are still higher than they used to be last year. But they remain significantly lower than the Americans. In the UK, you could hire a decent senior for 80K in London, now it would cost 100-120K. I know a few decent devs whose base salary rose to ~200K, that was extremely rare in the UK and even in London. Also in Germany and Austria I see salaries rising. On UK contractors, the government closed a tax loophole, or rather made it harder to exploit it, so the person sitting next to you and earning 700-800£ per day, now doesn’t pay less taxes than the junior making 60K per annum.
- nly 4y ago
  Graduates in London should be starting on £80K now. After putting some contributions away for retirement that "decent senior" on £80K might just about be able to buy a 1-2 bed flat in a soulless development in an "OK" part of London, but definitely not a family home. A graduate? Min 10% in to a pension (if aged 20), student loan, and they're only taking home £3.8K/mo. £2K/mo for rent is easily spent on a 1 bed furnished flat now, plus cost of living... might be OK, but hardly living like Gordon Gekko.
  - mmarq 4y ago
    Yes, the cost of living is extremely high, and you haven't considered the cost of childcare, school and healthcare (the NHS has never been great, but it went AWOL since the lockdowns). In London either you make in excess of 150K or you’d be better off working as a janitor in a random continental European country. Add 50K for each dependant. And I’m not sure it’s worth moving to London with a 200K salary if you don’t have 200K in your bank to pay for a deposit on a flat. I wouldn’t wish renting in the UK on my worst enemy.
    - nly 4y ago
      Slightly exaggerated, but I agree with the sentiment.

jheriko 4y ago

* dishonest and ethically corrupt contractors now take home less thanks to IR35. for the rest of us, it was a non-event.

badpun 4y ago
Let him who is without sin cast the first stone.
- Silhouette 4y ago
  There are plenty of people working as contractors or freelancers in the UK who are without sin in this respect. Not everyone - or even most people - working independently is trying to evade tax. In fact financially most people would be better off as employees now if you directly compare salary with contract rates as if they meant the same thing. The big advantages of contracting and freelancing are about flexibility and being able to price on value and not according to whatever trends are happening in the employment market.
  - varispeed 4y ago
    Independent contractors where not doing anything different than larger agencies. Same service, just with more attractive pricing. The difference between a small business and agency is that agency can actually afford to properly avoid paying tax. The taxes have been changed anyway, so the mythical small salary + dividend, does not offer meaningful advantage any more when it comes to tax. The real problem is that IR35 removes profit from the company and the company has no way of offsetting legitimate business costs against tax (like your office, accountant, insurance, tools, software etc.) and you also can't retain part of the invoice and taking lower salary and dividend to have a cushion for the times out of clients or when you want to build capital for a start up idea. It has completely killed entrepreneurship. It means less competition, less jobs and smaller growth of the economy. Not sure how is that a good idea.
    - Silhouette 4y ago
      Some "contractors" were definitely disguised employees so I have some limited sympathy with the original intent behind IR35. But the baby was thrown out with the bath water and then they knocked down the bathroom and half of the house for good measure. As you say that has had a devastating effect on the independent and entrepreneurial sectors in several industries including tech.
varispeed 4y ago
That's what you would think, if you couldn't reason beyond one or two variables. It has just become more expensive to hire skilled workers that were freelancing. This means the budget for permanent employees had to be culled. So while you laugh out of envy, you will notice that your raise or bonus will not go ahead. Companies also learn that the changed IR35 lets them decouple themselves from the responsibilities of an employer and they can no longer worry about unions if they move all their employees (except the core ones) to Umbrellas. The fire and re-hire schemes are getting more common. My friend was terminated this year and was given an opportunity to come back through an agency and an umbrella. Of course a slight pay cut and no more career path within the company he worked at.
sdnas211 4y ago
Being inside IR35 I now take home less pay, have less flexibility, and I pay less tax (because rates have gone down across the board without the upward pressure that existed in the old system). Who wins? Only my employer.

lol768 4y ago

> UK contractors take home less now than they did 5 years ago due to taxation changes (IR35). The way I've seen this go with companies that care about their contractor workforce is that assignments and their working practices are thoroughly checked to ensure they remain outside IR35, so the take-home is just as good as it used to be. Some contracts I've seen involve a liability shift clause from the agency/client to the contractor's Ltd co - and the client will often insist that you have fee-payer/agency IR35 insurance in place to protect the supply chain (Kingsbridge sell this sort of product) if such a clause is in place. You need to be in an in-demand role and present enough value to be able to demand this though and avoid blanket 'inside' determinations. Of course, if you continue supplying small companies, it remains the contractor's liability.

Silhouette 4y ago
Some contracts I've seen involve a liability shift clause from the agency/client to the contractor's Ltd co - and the client will often insist that you have fee-payer/agency IR35 insurance in place to protect the supply chain (Kingsbridge sell this sort of product) if such a clause is in place. Yes that's definitely happening. However this practice is on the radar of the relevant authorities and hasn't yet been tested in court/tribunal settings. It's clearly trying to circumvent the spirit of the rules by shifting responsibility that is now explicitly intended to rest with the client or intermediaries onto the contractor themselves. That may be unfair particularly if the client or intermediaries are also writing the contract and specifying the required working arrangements for an engagement as is often the case for contract work. It seems likely that a test case will happen before long. The resulting decision may be of the form "LOL nice try Mr Agency now pay up". As with so much in this area the real problem is that no-one knows for sure. That creates a chilling effect across the whole industry and of course the larger parties with the bigger legal budgets have a natural advantage there.
- lol768 4y ago
  I don't like it, and it's clearly not within the spirit of the rules (I'd rather the agency/end-client just paid Qdos for their own fee-payer insurance) but if it just creates a civil liability, I'm not sure I can see why it wouldn't be enforceable. The agency would have to pay up first, but then could presumably pursue the Ltd co afterwards.

thorin 4y ago

Ironically, the long time contractors who work at Inland Revenue (tax office) in Telford (possibly though another company) have largely been deemed outside IR35 with a special exception from HM Gov, as otherwise it would be difficult to source contractors! I have a number of ex colleagues who've been in and out of there over the years.

ivvve 4y ago
What's the stack at Inland Revenue? Must be something pretty old school...
- thorin 4y ago
  They were mainly manual testers, which might tell you enough! I wouldn't be surprised if there was some Oracle database stuff given what we've discussed together in the past.

Silhouette 4y ago

UK contractors take home less now than they did 5 years ago due to taxation changes (IR35). It's a bit more complicated than that. The tax rules themselves haven't actually changed. What did change was who was responsible for deciding whether an engagement was caught by IR35 or not and was also liable to pay for the big tax shortfall if they were later found to have made the wrong decision. It used to be the contractor themselves who determined the status. Now it depends on the situation but in many cases it will be the client. That has swung the needle from determinations often being too optimistic (some contractors claimed to be outside when they really weren't and hoped to get away with paying less tax than they should) to too pessimistic (risk-averse big clients aren't always assessing engagements properly and instead set blanket policies that put everyone inside even when they shouldn't be). Neither situation is good for the contracting market and neither is what the tax rules say should happen. Both are the fault of successive governments for using such ambiguous rules about such an important tax question and making such poor provision for honest participants who want to get on with the job to know they're safe and doing the right thing as far as their tax obligations are concerned. For genuine contractors who are working with decent clients and obviously aren't disguised employees the rules haven't changed and neither have the tax obligations. But yes there are some clients who just throw everything inside IR35 as policy and also want to keep the same headline rates as before. Contractors working with those clients will have taken quite a hit. The solution is not to work with bad clients who try to dump their obligations on you!

varispeed 4y ago
> For genuine contractors who are working with decent clients and obviously aren't disguised employees the rules haven't changed and neither have the tax obligations. The problem is that whether someone is genuine or not is no longer relevant, because you may be genuine, but risk averse client says you are not and there is nothing you can do about it. Every single genuine contractor I know now works in-scope of IR35. They pay their business costs out of their deemed salary, which is insane. > The solution is not to work with bad clients who try to dump their obligations on you! That's not a solution if the pool of "good" clients is getting smaller and smaller. If you now have much longer downtime because it is much more difficult to find a "good" client - say when it used to take a couple of weeks or even days, now it takes months - it makes the business no longer viable.

mmarq 4y ago

European salaries are still higher than they used to be last year. But they remain significantly lower than the Americans. In the UK, you could hire a decent senior for 80K in London, now it would cost 100-120K. I know a few decent devs whose base salary rose to ~200K, that was extremely rare in the UK and even in London. Also in Germany and Austria I see salaries rising. On UK contractors, the government closed a tax loophole, or rather made it harder to exploit it, so the person sitting next to you and earning 700-800£ per day, now doesn’t pay less taxes than the junior making 60K per annum.

nly 4y ago
Graduates in London should be starting on £80K now. After putting some contributions away for retirement that "decent senior" on £80K might just about be able to buy a 1-2 bed flat in a soulless development in an "OK" part of London, but definitely not a family home. A graduate? Min 10% in to a pension (if aged 20), student loan, and they're only taking home £3.8K/mo. £2K/mo for rent is easily spent on a 1 bed furnished flat now, plus cost of living... might be OK, but hardly living like Gordon Gekko.
- mmarq 4y ago
  Yes, the cost of living is extremely high, and you haven't considered the cost of childcare, school and healthcare (the NHS has never been great, but it went AWOL since the lockdowns). In London either you make in excess of 150K or you’d be better off working as a janitor in a random continental European country. Add 50K for each dependant. And I’m not sure it’s worth moving to London with a 200K salary if you don’t have 200K in your bank to pay for a deposit on a flat. I wouldn’t wish renting in the UK on my worst enemy.
  - nly 4y ago
    Slightly exaggerated, but I agree with the sentiment.