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80% of UK Government IT Projects Suffer Delays Due To Tax Clampdown (theregister.co.uk)
An anonymous reader shares a report: The vast majority of UK government IT projects are suffering delays due to freelancers quitting over the IR35 tax clampdown, according to a survey of contractors. Of 405 IT freelancers surveyed by Contractor Calculator, 79 per cent said the projects they have been working on were delayed as a result of contractors leaving. In April, the government shifted responsibility for compliance with the IR35 legislation from the individual contractor to the public body or recruitment agency. The Treasury says it hopes to raise $240m for 2017/18 by bringing public sector contractors within the scope of the legislation. However, the overall number of freelancers leaving as a result of the changes is lower than previously thought, with 48 per cent jumping ship. In previous surveys more than 80 per cent had threatened to walk once the changes came into force. Half of the contractors who decided to stay managed to find a way of working outside the IR35 changes, with a further 13 per cent working within the scope of IR35 but negotiating a rate increase. The rest seemingly took the changes on the chin.
This isn/t really "misclassified" contractors. This is a case of IT contractors using a tax loophole, the government closing that tax loophole many years ago, then IT contractors trying to weasel out of it illegally. The change happened years ago, and the government has been explicitly telling people for at least seven years not to pull the "IR35-proof contract" bullshit that doesn't work, but plenty still try.
Basically, the issue is this: organisations employ contractors who act like employees, but want to pay tax like corporations. So they set up a one-person business and write contracts that on paper attempt to swerve around the IR35 legislation. But the government has basically said that it doesn't matter what the contract states if neither party actually adhere to it because you're basically just disguising an employee and evading tax.
On the face of it, it sounds like you guys had a bunch of freelancers who weren't declaring at least some of their income.
#DeleteChrome
misclassified contractors should not be on the hook for taxes no the recruitment agency should be paying and doing the paper work.
I do freelance/contract/consulting work. However, I never work through an agency. I always form an agreement directly with my client. In my case I am responsible for all my own taxes along with everything else, which is how I prefer it to be. Is this approach not common? Is it more common for IT/tech/software dev consultants/freelancers/contractors to use an agency? If so, what is the benefit?
From my perspective I have always steered clear of those agencies because I don't care for recruiters in the first place, and because I would rather not have some filtering the exchange between me and the client.
"IR35-proof contract" bullshit that doesn't work
The government's problem is that the "IR35-proof contract" mostly did work.
IR35 initially caused a great deal of aggravation in the industry, not least because it was like a Sword of Damocles over the head of every legitimate contractor or freelancer who really was conducting their affairs as an independent business would and not just claiming to be a contractor as a tax loophole while still acting as an employee for all other practical purposes.
After an initial period of confusion, a few test cases settled various criteria as clearly distinguishing people who would not be caught by IR35, and almost everyone started structuring their contracts in this way. From that point on, HMRC has won almost no cases, not that it's even bothered to bring that many in recent years, and most accountants working with small businesses are IME not particularly concerned about the risks of IR35 today.
That poor track record of successful enforcement actions continued even after various attempts to introduce new official guidance on what should or shouldn't be covered. Some of the guidance was hilariously ill-judged; for example, IIRC one set of questions would have put one of my companies under IR35 even though it has nothing to do with contract or freelance work of any kind and no-one who could possibly be in the "employer" role.
The trouble, of course, is that all of the above also applied to the cheats who really are disguised employees and really should be caught by IR35. And so the irony of the whole government contractor mess coming up now is that the government already basically gave up on IR35 and just directly shafted all the legitimate contractor-based businesses as well by slapping a huge tax rise on dividends a couple of years ago, and then tightening the noose even further last year. At this point, you'd be mad to operate as a limited company and pay out through dividends just to try to save a small percentage on your taxes anyway; the overheads in admin and professional fees to run a limited company would surely cost you more that any small tax saving would be worth.
And yet since the government don't want to hit main income tax, National Insurance or VAT rates, the small businesses and independent professionals keep getting hit anyway. (Just imagine the reaction if, out of the blue, they increased the basic rate of income tax by 7.5% at the next budget, in addition to pushing up a variety of other tax rates here and there so the overall increase in what you were paying was more like 10%.) Sooner or later, they were bound to find that smart, well-advised professionals of the kind who could actually run successful small businesses in the first place were going to walk away from the kind of bad deal the government apparently thinks everyone should take, and in this case, it appears that the government itself is the one losing out as a result. As someone who's always run businesses according to both the letter and the spirit of the rules and yet been repeatedly screwed over by the government anyway, I don't have an iota of sympathy for them.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
I do freelance/contract/consulting work. However, I never work through an agency. I always form an agreement directly with my client. In my case I am responsible for all my own taxes along with everything else, which is how I prefer it to be. Is this approach not common? Is it more common for IT/tech/software dev consultants/freelancers/contractors to use an agency? If so, what is the benefit?
You don't need a network, you don't need to be a salesman, you don't have to know all the paperwork and you got a guaranteed base salary. At least that was roughly my experience starting out as a consultant, "all" I had to do was show up at clients and deliver well. As an consulting company they come across many opportunities big and small with different requirements, they were quite good at keeping billable hours high at good rates. It was employee-ish but with more variable pay, more varying projects, technologies and people. If you had downtime you could take classes and certifications. Overall a pretty good fast track to build a good CV.
If you mean agencies that take a cut just to match up the work with the people then I think people try to avoid them. Before you needed them to find the resources but with online database it's much easier to find what you're looking for. There's still those who do all that "other" work for a cut though, basically it's more like you buy a support service but if you don't find your own billable work you're not making any money. Often it's worth it to spend time billing and not dealing with everything else. You can waste a lot of time fiddling with paperwork and when you start to put a price on those hours it might make sense. Unless you're the jack-of-all-trades kind that can both sell and deliver and support yourself and be good at all three.
Live today, because you never know what tomorrow brings
I do freelance/contract/consulting work. However, I never work through an agency. I always form an agreement directly with my client.
Do you do work for the government? To supply services to my government you have to be on a list of pre-approved government suppliers (this process is vetted to try and prevent fat govt contracts going to friends and family of ministers/secretaries etc). To get on the supplier list is an effort, so your average freelancer doesn't have the time or patience to endure this, but recruitment agencies do, so they act as a middleman. Gov uses agencies to recruit contingent labour, freelancers apply via agency.
If you are big enough you would apply to be a direct supplier, but most contractors simply go through an agency.
We've seen this Reaganomics voodoo before, and it doesn't work because it was never intended to "work", it was intended to enrich the owner class further so they could extend their grasp over a duly uneducated captive electorate that doesn't care to study macroeconomics and prefers bullshit six word slogans instead.
Trickle down economics works reasonably well in a non-globalised economy. In the old days, most money stayed in the country so the wealthy used it to grow their local business which in turn trickled down to employees and their families.
But when modern transport and comms networks opened up borders, the money no longer trickled down, it trickled away overseas to cheaper labour and tax havens.
The idea is sound, but like most conservative policy it was just 20 years too late.
Wow, you're even stupider than I realized.
You've exposed the chink in his armour.
Wanna buy a shirt?
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The main problem is the population see a business that makes money, and wants the government to take as much money from them as possible to give to them. So instead of talking to the businesses trying to figure out what is acceptable to them, like how much is too much, and how law does the tax need to be for them to grow, they just raise taxes and figure just by raising taxes it means more tax is gathered.
Got people in government who don't know anything about macro economics who simply raising taxes as A + B = C. If taxes are too high, people will do something else. When taxes are to high, the government is telling the people that they don't want them running businesses.
I did this myself for a while so I might be biased.
I also went legit for one contract by working under an umbrella corporation. During that contractor had the privilege of paying the extra tax/NI while still not getting holiday pay, sick pay, pension contributions and for 6 weeks, never getting paid at all because the contract said they would only pay me once they were paid and the end client decided not to pay. If I'd been working directly, I could have sued them, but since I was under the umbrella, it was the umbrella that would need to sue them - and they couldn't be bothered as it would only be worth a ~hundred quid to them.
So yeah, I didn't go the umbrella route again.