Thursday, 14 November 2019

Yeah, right.

From The Register:

As many as 20 per cent of UK businesses are axing contractors completely in order to ensure they are fully tax compliant ahead of IR35 changes next year, according to a survey.

Recruitment consultancy and IT outsourcer Harvey Nash interviewed 350 businesses employing a significant number of IT contractors. It also found that 83 per cent said IR35 will negatively affect their industry.

From 6 April 2020, it will be the contracting body's responsibility to determine whether the contractor should fall within the scope of the "off-payroll working" rules, IR35.

The point is that the self-employed pay much less in National Insurance contributions (basic rate 9% and higher rate 2%) and employees pay much more (basic rate 25.8% and higher rate 15.8%). The actual income tax is much the same. So businesses and workers can save themselves a lot of money by treating people as self-employed rather than as employees.

In its infinite wisdom, instead of HRMC aligning the NIC rates (and preferably phasing out NIC entirely), they are obsessed with finding employees who are being treated as self-employed, reclassifying them as employees and collecting three year's worth of PAYE, plus penalties, plus interest. All very unpleasant and messy.

Do we really expect businesses to sack all their supposedly self-employed workers and leave everything undone? Do we really expect all the contractors to become unemployed? Or do we expect that most businesses will bite the bullet and only treat people as self-employed if they really are, and if in doubt, put contractors on the payroll and pay the extra NIC..?

Major employers including Barclays and GlaxoSmithKline have reportedly already told contractors that they will only employ them as on-payroll workers.

Which is what exactly what we expect. For sure, businesses and former contractors will have to share the extra NIC, that's an absolute cost to them.

The employer will also deduct the expected cost of certain statutory rights (holiday pay, pensions, sick pay, redundancy pay and rights, as well as less measurable things like employees having a better credit rating than contractors); all these things are of approximate equal and opposite value to the contractor/employee, so in the grander scheme of things, former contractors who are now employees won't really end up much worse off (apart from the extra NIC).


Kevin the Chimp said...

Are HMRC not losing out on 20% VAT paid by the contractor's Ltd Co to claim the extra NIC?
Won't this cause a net fall in tax take?

Mark Wadsworth said...

KtC, with a vat registered business, it cancels out. With banks, the extra vat is an absolute cost, which might explain why they were so quick to cave in.