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I notice that Dave is based in the UK, as am I. We have one big problem with day rate billing here and that's IR35. IR35 is the dreaded tax code that forbids

by Lio 2y ago

I notice that Dave is based in the UK, as am I. We have one big problem with day rate billing here and that's IR35. IR35 is the dreaded tax code that forbids contractors from appearing to be "disguised employees". There's no published fixed set of rules as to what is and isn't inside or outside IR35 but the guidance I've seen seems to me mostly centred on control and direction of labour. The advice I've had from my accountants is that it's much easier to demonstrate that you're outside IR35 if you charge for deliverables and rather than time. If you're just a bum on a seat, doing exactly what you're told, then you're indistinguishable from an employee for tax purposes. As such you can be liable to be taxed twice retrospectively without receiving any benefits of employment such as sick pay, pension, holiday or expenses. That can happen years down the line even when your accounts were fully signed off and paid up.

TomK32 2y ago
Why not both? A fixed project rate and all the extra that inevitably and uninvited show up cost by the hour. The reasoning being that 90~95% of the project are easy to complete with the rest often taking up an unknown amount of time and resources
- jt2190 2y ago
  If you know today that 5% of your projects have an “infinite downside” (i.e. an “unknown amount of time and resources”) you need to fix your contract to cap that to a reasonable amount.
flir 2y ago
When the tax liability for a "disguised employee" decision fell on the contractor, the clients were unconcerned. Now the tax liability falls on the end-client, they're extremely gun shy. IR35 is vague by design - its intention was to create a climate of uncertainty (IMO).
- mattbee 2y ago
  It's an anti-avoidance measure from when IT contractors benefited from (historically) lower business taxes while taking no actual business risks. The rules are lengthy because they're trying to be precise. If you read the guidance on gov.uk, I don't think they're not vague at all. There's even a step-by-step "wizard" so you can determine if a particular contract falls inside or outside the rules. IMO the only people "dreading" the IR35 rules are the people still trying to dodge them.
  - roenxi 2y ago
    > IMO the only people "dreading" the IR35 rules are the people still trying to dodge them. That observation seems vaguely circular. The dread is because someone might be able to avoid the tax but has to do something inconvenient, or because there is a risk of misinterpreting the tax law's provisions. So yes, the people who dread a tax are exactly the people trying to avoid it. And this is the nature of taxes. The economics of society are largely structured by tax avoidance schemes, people put huge amounts of effort into not quite making a normal income for tax purposes.
  - Lio 2y ago
    Personally, I find the "tax dodger" talk to be unhelpful. When I was contracting HMRC would not give me a hard list of rules to follow even if I wanted to. For example if you deliver some piece of code and the customer asks you to provide support for it, is that inside or outside? The initial software is a deliverable and so within your control. Support though is usually based on time and issues that the customer brings to you. That could be said to be out of your control. So is the contract inside or outside? You and your accountant can only guess. That wizard you mention only gives guidance, it does not provide a legal answer. Plus HMRC can and do retrospectively change the rules to reopen accounts years after they were originally accepted. There's no finality there and the longer you run your business the bigger risk. At the time I couldn't find a suitable insurance service to cover that risk. I believe there are now finally IR35 cover products but it worried me enough that I just closed my contracting business down. I can only assume that as HMRC were happy with that winding down that I was not a "tax dodger" all along.
    - 2y ago

by Lio 2y ago

TomK32 2y ago

Why not both? A fixed project rate and all the extra that inevitably and uninvited show up cost by the hour. The reasoning being that 90~95% of the project are easy to complete with the rest often taking up an unknown amount of time and resources

jt2190 2y ago
If you know today that 5% of your projects have an “infinite downside” (i.e. an “unknown amount of time and resources”) you need to fix your contract to cap that to a reasonable amount.

flir 2y ago

When the tax liability for a "disguised employee" decision fell on the contractor, the clients were unconcerned. Now the tax liability falls on the end-client, they're extremely gun shy. IR35 is vague by design - its intention was to create a climate of uncertainty (IMO).

mattbee 2y ago
It's an anti-avoidance measure from when IT contractors benefited from (historically) lower business taxes while taking no actual business risks. The rules are lengthy because they're trying to be precise. If you read the guidance on gov.uk, I don't think they're not vague at all. There's even a step-by-step "wizard" so you can determine if a particular contract falls inside or outside the rules. IMO the only people "dreading" the IR35 rules are the people still trying to dodge them.
- roenxi 2y ago
  > IMO the only people "dreading" the IR35 rules are the people still trying to dodge them. That observation seems vaguely circular. The dread is because someone might be able to avoid the tax but has to do something inconvenient, or because there is a risk of misinterpreting the tax law's provisions. So yes, the people who dread a tax are exactly the people trying to avoid it. And this is the nature of taxes. The economics of society are largely structured by tax avoidance schemes, people put huge amounts of effort into not quite making a normal income for tax purposes.
- Lio 2y ago
  Personally, I find the "tax dodger" talk to be unhelpful. When I was contracting HMRC would not give me a hard list of rules to follow even if I wanted to. For example if you deliver some piece of code and the customer asks you to provide support for it, is that inside or outside? The initial software is a deliverable and so within your control. Support though is usually based on time and issues that the customer brings to you. That could be said to be out of your control. So is the contract inside or outside? You and your accountant can only guess. That wizard you mention only gives guidance, it does not provide a legal answer. Plus HMRC can and do retrospectively change the rules to reopen accounts years after they were originally accepted. There's no finality there and the longer you run your business the bigger risk. At the time I couldn't find a suitable insurance service to cover that risk. I believe there are now finally IR35 cover products but it worried me enough that I just closed my contracting business down. I can only assume that as HMRC were happy with that winding down that I was not a "tax dodger" all along.
  - 2y ago