Hated contractor tax might disappear
Tax changes could do for IR35
IR35 – the tax on one-person service companies – might be revoked by upcoming changes to UK tax law.
The quango tasked with advising Chancellor George Osborne said it was difficult to know what to do about IR35 because of a lack of solid data.
The Office of Taxation Simplification (OTS) said there was no reliable data. HMRC said IR35 only applied to 9,500 people in 2008/2009, down from 30,000 the year before.
Anti-IR35 lobby group the Professional Contractors Group however reckons there are 1.4m freelance workers in the UK, although this includes people not hit by the tax.
Any change to IR35 could prove irrelevant anyway if Osborne accepts the OTS's recommendation to unify tax and National Insurance contributions.
The quango did dismiss IR35 as ineffective for both the Exchequer and for contractors. It also noted that the risk of an IR35 investigaton by the Revenue was minimal.
The OTS said the law was too simple to be applied to a varied workforce.
The law, much hated by IT contractors, was passed in 1999. It stopped one-man service companies paying themselves low wages, with limited National Insurance payments, but stonking share dividends, which do not attract NI payments.
The true impact of the tax is hard to judge because many contractors now work through umbrella companies rather than their own limited companies.
George Osborne will consider the interim report which also looks at other aspects of small business taxation, including how smaller firms which trade internationally pay VAT, and simplifying the tax rules which take small companies the most time to deal with.
You can download the full OTS interim report from here. ®
Yes, I downvoted you, though I'm a permie myself. I'm no idiot, I know the difference between a high hourly rate and what income can end up as by the time you take all the non-billable hours out of a month.
IR35 was never ever about curbing the excesses, it was simply about milking people. The fact that innocent people got caught up in it was irrelevant as long as those at the top got their pound of flesh. Notice how they attacked those at the bottom of the food chain who weren't able to fight back - but did nothing about the billions of tax avoided by their chums in big businesses.
IR35 was treating the symptoms, not the cause.
You say you got out because it was sickening. I don't know how to read that - there are several ways it could be taken.
Note also that IR35 didn't just hit those it was aimed at - if it did then I don't think there'd be that many campaigning against it. It also hit honest people who were paying a fair level of taxation - some of whom ended up with all the disadvantages of contracting (you'll be familiar with them, no paid holidays, no paid sick, no paid time off for training, no job security, no guarantee of a means to pay the biils at the end of the month, ...); while at the same time paying the same tax as an employee getting all of those.
For a start, no contractor takes home 80% of their salary. The best we can hope for is to just pay the income tax at 20/25/40% and hopefully very little employee NI and no employer NI.
The main reason IR35 is hated is because it forces us to pay a whole bunch of EMPLOYERS NI on top of the EMPLOYEEs NI that permies have to pay. So us contractors end up paying MORE NI than permies do. For permies, the EMPLOYERS NI is paid by your employer, funnily enough.
Personally, I don't have a problem with paying employees NI but I don't see why I should pay employers NI on top of that. It's bloody expensive and is designed to be paid by large corporations, not individuals.
And by the looks of it, I'm one of a vanishingly small percentage of contractors who DOES pay IR35 tax. And yes I have been investigated by the Revenue, and that made me glad I paid what I should have, I've heard from friends that when the Rev catches you dodging IR35, you are in for a rather large NI bill, with interest.
I agree that contractors paying themselves dividends to avoid NI completely is wrong, but IR35 moves the ball too far into the other court, so we end up paying more than permies. And considering the risks we take in being temporary staff trying to support families and homes, I think that takes the mick. We should be on a par with permies, and that's that. A good, balanced regime is what's needed.
If we're "worth" that little why do companies make use of our services so often.
Plus, you had to be ltd company when I started as there were no umbrella companies to speak of and no company/agenct would take on a person on a self-employed basis. They wanted the protection that ltd company status gave their business.