They moved responsibility for determining whether a person is acting as an employee or a vendor in the vast majority of cases to the client, who must demonstrate a bunch of factors (I'm not a tax guy), not least
- the "vendor's" right to substitute himself for a replacement they subcontract (via employment or otherwise) to, irrespective of the client's deemed suitability of the chosen replacement
- the "vendor's" right to a significant level of autonomy, such as the ability to choose their working hours and lunches, and have high level control over their workflow
- the process of determination 'employee' vs 'vendor' must be significantly documented and can be challenged in retrospect for years after completion of the contract
Falling on the wrong side of a determination could leave the client liable for mandatory national insurance and pay-as-you-earn tax deductions. Now HMRC need not prosecute individual contractors, but instead clients (who may hire hundreds of contractors), making the enforcement process much more efficient for them, and much higher risk for the clients.
Net result for companies: building big overnight temporary teams out of contractors e.g. for 6-12 month projects are vastly less likely to do so, for fear that at some future date, the tax man could claw back a year's worth of tax for e.g. 20 contractors on the same project, with non-compliance and late payment penalties lumped on top (which themselves increase with respect to how long it took HMRC to get around to investigating you). It could be the case (hypothetically) that it would only require one member of a team to report the inability to substitute, or the presence of a line manager, for an entire project team's worth of tax to get a question mark placed next to it.
Net result for contractors: anyone who understands what's going on has either pivoted into becoming a permanent employee, avoiding the whole mess, since contracting is an expensive activity to begin with, and the premium has now been removed, or has banded with a few friends and attempted to set up "micro agencies". I've already encountered these, where substitution was advertised very early in conversation.
Net result for the market: it will be all but gone by April 2020.
The bit that sucks, if you are a legitimate contractor, is that rather than clients determining on a case by case basis whether or not a contract falls under IR35, they're short circuiting the whole thing by assuming every contract falls under IR35.
However I suspect this is because _most_ of their contractors are actually just disguised employees, and I say this as a contractor myself. However the legitimate contractors are also getting hit by the backlash now that the clients are on the hook for penalties.
Personally, I'm going to keep contracting past April as I generally only work with small businesses anyway and they can see quite clearly that my contract does not fall within IR35. If however they had 100 contractors instead of say, 1-2, it's much harder to make that determination.
> Net result for companies: building big overnight temporary teams out of contractors e.g. for 6-12 month projects are vastly less likely to do so, for fear that at some future date, the tax man could claw back a year's worth of tax for e.g. 20 contractors on the same project
Why shouldn't the companies be paying the required taxes for the 6-12 months exactly? It sounds like they are doing temporary employment. In other words, this finding sounds exactly correct.
Are there no fixed-length employment contracts in the UK? For these projects, wouldn't the correct thing to do be having these people employed on a limited term contract as full employees, and have to pay all the correct employment taxes and such? This seems like a logical thing for the government to want, and I don't blame them for enforcing it.
And wouldn't the person who's doing this work benefit from it as well? They get benefits this way, and it's not like being fully employed by different companies for 6-12 month stretches is that different from not technically being employed by those employees but working exclusively for them nonetheless over 6-12 month periods.
It eliminates the sizeable premium that previously attracted skilled labour to the instability of contracting. Without premium, why bother with the risk?
FWIW, prior to the recent change, I believe the situation had been the status quo since well into the 90s. I only started contracting circa 2007
Why would it eliminate the premium? Companies would still be willing to pay extra for shorter term highly skilled workers that produce results.
And if that premium only existed because the company wasn't having to pay the employment taxes and benefits that they should, then it deserves to go away. It was tax avoidance, not an actual premium.
Well, from your feedback, the law seem to have had the required effect combining supression of disguised employment, assigning the right responsibility to parties involved and avoiding dilution of said responsibility.
- the "vendor's" right to substitute himself for a replacement they subcontract (via employment or otherwise) to, irrespective of the client's deemed suitability of the chosen replacement
- the "vendor's" right to a significant level of autonomy, such as the ability to choose their working hours and lunches, and have high level control over their workflow
- the process of determination 'employee' vs 'vendor' must be significantly documented and can be challenged in retrospect for years after completion of the contract
Falling on the wrong side of a determination could leave the client liable for mandatory national insurance and pay-as-you-earn tax deductions. Now HMRC need not prosecute individual contractors, but instead clients (who may hire hundreds of contractors), making the enforcement process much more efficient for them, and much higher risk for the clients.
Net result for companies: building big overnight temporary teams out of contractors e.g. for 6-12 month projects are vastly less likely to do so, for fear that at some future date, the tax man could claw back a year's worth of tax for e.g. 20 contractors on the same project, with non-compliance and late payment penalties lumped on top (which themselves increase with respect to how long it took HMRC to get around to investigating you). It could be the case (hypothetically) that it would only require one member of a team to report the inability to substitute, or the presence of a line manager, for an entire project team's worth of tax to get a question mark placed next to it.
Net result for contractors: anyone who understands what's going on has either pivoted into becoming a permanent employee, avoiding the whole mess, since contracting is an expensive activity to begin with, and the premium has now been removed, or has banded with a few friends and attempted to set up "micro agencies". I've already encountered these, where substitution was advertised very early in conversation.
Net result for the market: it will be all but gone by April 2020.