[Closed] Public sector contractors - plans for the new financial year?

I'm a contractor, but in the private sector. It's all a real mess isnt' it.

I'd not touch the public sector for the foreseeable until things settle down and the situation becomes clearer. If I were currently in a public sector gig then I'd seriously consider getting out asap.

Big implications for the NHS.

Many consultants are paid above normal working hours in to their company. If they are now forced to go PAYE I doubt many will continue to do it. Why would you work an extra 10hrs on top of a 50+hr week for then 50% to be taken off you

I do wonder if the fact that the ESS tool isn't going to be available until the end of the month, will mean that it will all be pushed back until November. Maybe wishful thinking.
Currently trying to decide whether to extend a public sector contract due for renewal at the end of March.

Here's a glass half empty take on this.

HMRC will fail to manage this properly - usual lack of resources; Gov will look to extend to private sector.

Chaos.

Predictions (excluding medical staff in NHS)......contractors will look for rate rises in public sector to offset IR35 costs in attempt to leave their financial position substantially unchanged; public sector - NHS in particular - will be increasingly unable to deliver without increases in permanent headcount; increases in headcount not acceptable to exec management.

Longer term - private sector will be targeted with utilities/regulated businesses possibly up first; cost increases for business; performance affected; same considerations as public sector re headcount.

Contractors attempting to move back into perm market; downward pressure on salaries for new appointments; wage freeze for existing employees to bring 'parity' with new hires.

[I]Currently trying to decide whether to extend a public sector contract due for renewal at the end of March. [/I]

Phew, your risk.

If you do you'll be assumed to be in IR35, if you aren't already you've the risk that HMRC will then come to you for all the past income.

Interesting times ahead, that's for sure!

[i]Big implications for the NHS.
Many consultants are paid above normal working hours in to their company. If they are now forced to go PAYE I doubt many will continue to do it. Why would you work an extra 10hrs on top of a 50+hr week for then 50% to be taken off you [/I]

Not just consultants but a large majority of all temp medical staff. They currently work in another trust for their 'extra' if not on their trusts 'nurse-bank'.

I reckon the initial 'hit' will be the Easter weekend, just long enough for them to have had their first invoice paid at net and it dawn on them what it means.

Not just consultants but a large majority of all temp medical staff. They currently work in another trust for their 'extra' if not on their trusts 'nurse-bank'.

Controversial I know but pay tax? 😉
How many contractors pre not disguised employees?
I remember the test that got scrapped, was kind of a tough one.

Judging by the contractors here, the answer is leave for pastures new. It's going to be an interesting year!

Controversial I know but pay [b]more [/b] tax[b] than you are legally obliged to pay[/b]?

Fixed it for you

Big implications for the NHS. Many consultants are paid above normal working hours in to their company. If they are now forced to go PAYE I doubt many will continue to do it. Why would you work an extra 10hrs on top of a 50+hr week for then 50% to be taken off you

What, like pretty much every other higher rate tax payer (albeit it's 62% marginal tax at £100K)?

Maybe the hospital consultants (already one of the most highly paid professions) should see it as a fair contribution towards the running costs of a service that just about everyone agrees needs more money spent on it.

julians - Member

Controversial I know but pay more tax than you are legally obliged to pay?

Fixed it for you

[i]So how close to the IR35 rules do you fly? How many of those are actually just disguised employees? [/I]

Mike

You've also to understand that its the clients pushing contracting too, they don't want these employees so are happy to pay them as contractors - pretty much like the Govt has been with its +30000 contractors.

And if it could ever sort out its HR, it'd probably find there was less demand for NHS ones too.

http://www.independent.co.uk/news/uk/home-news/health-warning-over-army-of-nhs-temps-8101469.html

[I]It's mostly consultants who work through their own ltd company though. Most nurses on the bank would be paid through payroll so will already be paying PAYE as it's essentially a part-time job, so this will make no difference to them. [/I]

Ignore those on local nurse bank, and you'll find it's probably in the region of 10000 across the NHS on every single day (if not shift) and +£4bn pa spend.

How many of those are actually just disguised employees? Long term contracts??

It isn't the contractors fault that the NHS etc. won't take on permanent headcount.

You've also to understand that its the clients pushing contracting too, they don't want these employees so are happy to pay them as contractors - pretty much like the Govt has been with its +30000 contractors.

This will be chaos for the public sector. I saw a sort-of similar situation play out two years ago at a large public-funded establishment:

Management decide they're spending too much on contractors
Management notice that employees are much cheaper
Management get rid of loads of contractors (literally hundreds of them)
Management try to recruit permies (at Civil Service rates, well below actual market rates)
Management fail to recruit permies (it was also an unpopular location, doing specialist work, there's only a finite number of suitable people)
All the work the contractors were doing, is not getting done
Management relax rules and start taking contractors in "limited" cases
Most of the work the contractors were doing, is still not getting done
Management start recruiting the old contractors back again.
Management find that everyone wants a pay rise to go back to their old jobs, to compensate for being ****ed about, and protect against a repeat performance.
Various multi-million pound projects are two years behind schedule because they've been stalled due to lack of manpower. No money has been saved.
Taxpayer bails it all out.

So the same kind of thing will happen now. The public sector is so bound up in red tape, pay scales, headcounts and unionisation, and that is *exactly* why it has so many consultants. Because "the system" cannot pay market rates for specialist skills. The best people with the best skills will walk. They won't be replaced. Government will trumpet the huge reduction they've made in spending on consultants. Then 3, or 6, or 12 months down the line things will blow up when services aren't being delivered and projects aren't getting finished.

Really, this should have been trialled on the private sector first. It's going to cost the taxpayer a fortune.

+1 Sundayjumper

Same scenario will occur where my OH contracts. Management are currently in ostrich-mode.

All the contractors are on a weeks notice, so are waiting until the end of March before resigning.

The only winners will be the professional services companies.

[i]Really, this should have been trialled on the private sector first. It's going to cost the taxpayer a fortune. [/I]

Hopefully this is sarcasm.

@ Sundayjumper

So the only hurdle here is "(at Civil Service rates, well below actual market rates)"

So this is great news for us permanent NHS Staff..Bring it on 🙂

It isn't the contractors fault that the NHS etc. won't take on permanent headcount

Oftentimes they will, it's just that they can only offer talented people less money than the existing, possibly rubbish, staff are on due to rigidity with bandings & increments. I'd happily be an NHS employee otherwise.

My current colleagues (the other contractors) are getting in a bit of a tiz about all this, but I'm not bothered as I'm (very obviously!) well inside IR35 and have been for 10ish years, so have been paying more tax than I could have got away with.

Admittedly I was a bit pissed when I lost pretty much all expenses this fin. year, but I'm still paid pretty well, and don't have a massive sense of entitlement because I know 3 more Excel functions than the perm. staff 😆

The only winners will be [s]the professional services companies[/s] Capita

Sunday jumper, are you up in the north west? That sounds exactly like my work!

Sundayjumper - Member

Really, this should have been trialled on the private sector first. It's going to cost the taxpayer a fortune

'Trialed' Come on, if you're a contractor working full time for a single 'customer' on a long term contract you must have been waiting for the other shoe to drop for years. IR35 was passed in '99 and reviewed in '10 - plenty of time for everyone to get ready.

Will thousands of contractors getting paid, what? twice what 'Permies' get paid really just walk from roles in disgust at paying the same rate of tax as them? Nah. Yeah go and get nothing sitting on your arse watching neighbours in protest rather than earning, doesn't sound like the mindset of any of the contractors I know.

julians - Member

Controversial I know but pay more tax than you are legally obliged to pay?

Fixed it for you

The People who decide what you're legally obliged to pay don't agree with you.

"[i]'Trialed' Come on, if you're a contractor working full time for a single 'customer' on a long term contract you must have been waiting for the other shoe to drop for years.[/i]"

You've missed the critical detail in the new rules. The onus of declaring in/out of IR35 is moving from the contractor to the employer. Many employers are likely to play it safe and say "in", which obliges them to deduct tax from your invoices almost exactly like a PAYE employee. They don't need to give you any of the benefits of being an employee though. If they declare "out" and HMRC disagrees somewhere down the line they will be liable. For HMRC it will be far easier to do this at employer level, than individually with the tens/hundreds/thousands of individual contractors engaged by the employer. Hence the example of TfL applying a blanket ban on PSCs to save themselves the grief.

"[i]Will thousands of contractors getting paid, what? twice what 'Permies' get paid really just walk from roles in disgust at paying the same rate of tax as them? Nah.[/i]"

Some definitely will. I know people who will very happily take six months off while the dust settles.

"[i]Sunday jumper, are you up in the north west? That sounds exactly like my work![/i]"

No, but I can take a decent guess at where you work ! I was at a large site in Hampshire. Which you can probably guess...

I don't see any implications for NHS - just the outside leaches. all NHS staff are PAYE including medical consultants and all locum / bank work is also PAYE

TJ - yes your consultant will be PAYE for their contracted hours, but there are a number of consultants that do additional hours that ask for that payment to be made to their company.

There are quite a few agency consultants and middle grades that do it too

I thought that loophole had been shut last year - and its very very few folk.

Could just pay higher rate tax on their extra hours, just like us PAYE saps. (NHS, FT employee here) just a scam isn't it really? Just starbucking in an individual scale.

Just starbucking in an individual scale

I can see the point that temp staff may not work at same rate all year so paye is probably not workable, but once you're off paye it would seem you can just basically avoid tax left right and centre which the majority of us don't. Plus there seem to be quite a few contractors effectively taking a full time position.

So what's the practical* reason for contractors legally avoiding tax that paye aren't allowed to? genuine Q

*I'll avoid using emotive words like "moral"

Interesting times, personally I think we will see a move towards more perm roles and an increase in salaries for new recruits (unlikely to be passed on to those already a PS employee)

As for the "moral" question, it is an interesting one. I have no problem with contractors earning significantly more due to lack of perm benefits and the additional risk (though several 'contractors' at my place have been working for the same employer for nearly a decade with the odd week or two break in contract). The bit that does bug me is the lack of a significant contribution towards tax. Yes I know well within the rules, and yes I know I also could have taken advantage. Most contractors are sensible but we all know several pis staking ones. VW Camper as a mobile office? Rib as a company vehicle? Boasting of 93% takehome?

I'm also wondering if the Pimlico plumber case might be used by a contractor at some point to claim a decade + worth of perm benefits. Imagine If some of these £1k per day contractors were also able to claim they should have been entitled to a perm equivalent pension....

Yea, all us contractors are just coining it in and no tax at all..,

And the reason employers use us is that unlike their perms we come in and get the job done, can be dismissed with a weeks notice, no hols, no sickness, no training, no pension and no NI. So saving about 50% of salary in the public sector.

b r - well some do, some don't. Just like some PS staff are diligent and hardworking and get the job done.
There's always a case to use contractors but as usual the system is skewed to address the % that do legitimately play the system.

Me, an ex contractor who used a Ltd Co to limit my tax exposure to what I was legally obliged to pay.

[quote=b r ]
All the contractors are on a weeks notice, so are waiting until the end of March before resigning.

Leaving it a tad late. When will your final invoice be paid it you did that ? If it's after 6th April then it will be subject to the off-payroll changes. Is your agency making provision to pay all invoices by 5th April ?

[I]Is your agency making provision to pay all invoices by 5th April ? [/I]

I'm not in a PS contract, but my OH is - and yes, pretty much all the agencies have worked out (some needed a 'push') they'll need to bring their payments forward otherwise folk would be leaving at the end of February.

And TJ, have you any idea just how many shifts are filled by temps in the NHS - as said it isn't "a few", it's thousands, per day.

No communication about it at all where I work. I'm employed via an umbrella so should be ok but would like it confirmed.

Have you asked?

Yes, nobody even seems to know it's happening 😮

BR - yes - and the temps are all on payroll paying PAYE tax apart from a very few consultants in London whose employers allowed them to sert up this scam. How do I know - I have been a temp and I have been a manager in the NHS

TJ

10000 every day IME, worked out from supplying software to the recruitment industry vs my clients market share.

Also Govt think they've approx 30000 PSC contractors working in the public sector.

TJ, br, in the spirit of STW, you're both wrong! 😉

Nurses are mostly with the hospital bank (so within PAYE) or with a legitimate agency (so not a PSC). It's the consultants, IT contractors, project managers etc all employed through their own limited companies that this will affect.

Medical consultants / doctors all bar a few are also PAYE

Bails - when I reffered to consultants I of course meant medical professionals. perhaps not clear enough.

Bails - when I reffered to consultants I of course meant medical professionals. perhaps not clear enough.

Although when I said "all employed through Ltd companies" I wasn't being clear either, I didn't mean that all consultants were using that arrangement.

The majority of (medical) consultants will be on the payroll as an employee, but many of the agency/locum consultants will be 'engaged through a limited company' which means they fall foul of the IR35 changes. And I'm not saying that from a London trust.

I'm a public sector manager, and have a temp in my team, recruited through an agency, to do a specific piece of work for a year. The temp is paid through a company and has some work with another public sector body. I've been told by the agency that IR35 applies, so pay will be subject to tax & NI at employee rates. For those of you who understand such matters, does that sound right?

Ransos - possibly! In my mind it seems that if the work is deemed as 'equivalent to employment' then IR35 and PAYE tax applies- so a 'temp' or a 'contractor' might be in, but a 'consultant' (not a medic) might be out. There used to be tests like whether they could use the staff canteen, had to fill in a timesheet, provide their own tools/laptop and the like. They were rubbish and got discontinued...

For those delivering a product or output but retaining control of the work and methods used, then they shouldn't be included, but it seems that the problem people fear is that we'll all be bundled in together.

Were IR35 to be applied incorrectly, what do you reckon the chances of getting tax back via the tax return are? NI almost definitely not (once paid it's paid), but I wonder about personal vs corporation tax for Ltd. Co. consultancies.

Does seem to be a little close to the wire for so little clarity...

From 6th April it should be you, the PS client, that decides whether in/out. But tbh under the new rules it'll be next to impossible to be out.

Thanks both. "We've" decided that IR35 applies, but of course the organization is a cautious entity - I was trying to get a little clarity. It seems that confusion reigns.

It does seem pretty unfair to pay employee levels of tax without receiving employee rights such as a pension and holiday pay.

It does seem pretty unfair to pay employee levels of tax without receiving employee rights such as a pension and holiday pay.

Contractors should be getting more pay to compensate for lack of pension and holidays, not paying less tax.

Well that's what we're expecting, isn't it? Contractors will put their prices up to compensate, and the additional tax revenues will be offset by additional public spending.

ransos - I meant HMRC rather than you when I was talking about clarity, sorry.

It sounds to me that you temp is probably 'in'. You haven't said what they do, but your phrasing seemed to imply they'd be getting instructions and a supply of work from you, rather than a request to produce something then left to it? In their position I'd be seeking to ensure the day rate addressed sick and holiday considerations (so would be a different number than someone's salary divided by the number of days).

Part of the problem is the different styles of contracting seem likely to all be lumped in together by (rightly) cautious public bodies.

And the reason employers use us is that unlike their perms we come in and get the job done

Then us perms have to go in and put the **** up right 😀

Well that's what we're expecting, isn't it? Contractors will put their prices up to compensate, and the additional tax revenues will be offset by additional public spending.

Here we go, this is the kind of thing I was describing last week:

[url= https://www.theregister.co.uk/2017/02/27/contractors_begin_mass_exodus_ahead_of_ir35/ ]CLICKY[/url]

The full effects won't come home to roost for ~six months though, when the personnel losses really bite.

I'm sure the likes of Capita, Accenture and the Indians are preparing to step into the breach..,.. though not sure how that's going to help a)the tax intake, and b) the cost of services

Many employers are likely to play it safe and say "in", which obliges them to deduct tax from your invoices almost exactly like a PAYE employee. They don't need to give you any of the benefits of being an employee though.

The tax loophole is not there to compensate for lack of employee benefits. Higher rates of pay compensate for lower security and benefits. If you don't think it's enough then the market says you should walk. If your employer doesn't want you to walk then it should offer you more pay, not less tax. Tax should be based on your earnings.

"[i]Tax should be based on your earnings.[/i]"

Easy to say, harder to nail down in a completely watertight legal way. Contrary to what a lot of people here seem to think, the tax laws are not designed purely to give unfair advantages to contractors, they were built for "real" businesses and then taken advantage of by individuals choosing to operate as limited companies.

The complete raison d'être of a limited company is to legally separate the company and the owner. "Limited Liability". The earnings of the company (i.e. its turnover) [b]are not[/b] the earnings of the owner/director. The two are separate legal entities. IR35 is attempting to blur this. The company has running costs, the company pays corporation tax on its profit. Any remaining profit can be distributed as dividends, or reinvested in the company, or just held as cash in the bank. It's not the owner's special piggy bank and there are already rules in place about taking loans from your limited company. For a "normal" company (a shop, or a factory, etc.) this all works perfectly well. A limited company with only one employee who is also its owner, that only works for one client, follows the same rules because legally it's the same. That's what is being changed.

It's all about the dividends. Until FY15/16, dividends to basic rate taxpayers incurred no additional tax. Higher rate was 25%. That 0%/25% compared to 20%/40% if the same money had been paid as salary. That's a big difference. Plus there's no NI on dividends. This made it very attractive to pay yourself mostly in dividends rather than paying all of it as salary.

If this was just about raising more tax revenue it could be fixed very quickly by aligning dividend tax rates with income tax rates, and charging NI on dividends. It would all go through your self-assessment with virtually no effort required on HMRC's part. No IR35 in/out quandries. No additional hassle for agencies doing tax calcs before paying invoices. Problem solved. But it would hammer people with large investment portfolios who receive dividends from them. I imagine a lot of senior government folk have large investment portfolios 😉 So it's preferable to target those nasty tax-avoiding contractors with a complicated and costly workaround that will eventually backfire.

https://www.tax.service.gov.uk/check-employment-status-for-tax/setup

[b]The intermediaries legislation does not apply to this engagement[/b]

😀

Except it should be the public sector end client that needs to run the ESS, or am I wrong?

Contractors will put their prices up to compensate, and the additional tax revenues will be offset by additional public spending.

NHS provider side caps mean this is very unlikely.

As an aside - It's a disgrace that contractors & perms alike can rake it in by working on commissioner side (or in other non-provider orgs.)

You listening TJ? An NHS contractor who actually gives a shit 😛

Except it should be the public sector end client that needs to run the ESS, or am I wrong?

It can be run by worker, agent or end client.

[I]It can be run by worker, agent or end client. [/I]

I'm aware that it has 3 options (just been online to take a look), but since it's the PS client that decides whether a role is in/out (and the agency won't take the risk of saying out, and then been declared in as they'd have to pony up the tax/NI) it's a bit pointless anyone else using the tool as you've no idea how they are actually going to answer the questions (and these are linked, so change depending on how the questions are answered).

Again, don't be needing to attend A&E over Easter...

[i]A limited company with only one employee who is also its owner, that only works for one client, follows the same rules because legally it's the same. That's what is being changed.[/I]

We've two fee-earners working across multiple clients, and get treated the same as we're 'only' selling our expertise - it's all about the tax-take IMO.

you've no idea how they are actually going to answer the questions

I know what the working relationship is with my client and can answer the questions on that basis. If I wasn't able to confidently answer the questions then I'd definitely be within IR35. Even the tricky one about substitution has been considered in discussions over the past few weeks to reach a shared understanding.

I guess it depends very much on what [s]work you do[/s] services you provide to your client.
YMMV

[I]I guess it depends very much on what work you do services you provide to your client.
YMMV [/I]

Yes, I'm aware of that, see post above as we're not hidden-employees like many.

One thing is quite apparent, it's yet another exercise with unintended consequences - the public sector will come out of this showing yet again its inability to actually get work done efficiently, economically and to quality.

And others will get the blame for their failings, ie us money-grabbing contractors won't work with them, rather than their 5h1t management and HR abilities.

B r, is that really the public sectors fault though? If the going rate for a particular role is £800/day then the public sector will likely have to pay £1000+ in order to give the contractor an equivalent take home amount. But they are (in the NHS at least) subject to limits on agency/contractor spending, so they might only be allowed to pay £300. Unsurprisingly, that won't get the best people for the job, but that's because of central rules imposed on them.

And the "money grabbing contractors" bit, while completely understandable and rational, is true in many cases. You could be a contractor working through a limited company/agency on £500 per day. Or you could be a permanent/fixed term employee on £30k p/a. Lots of people, quite sensibly, choose to have more money in that situation. It's not a hospital's fault that people can earn more money elsewhere.

It's all about the dividends. Until FY15/16, dividends to basic rate taxpayers incurred no additional tax. Higher rate was 25%. That 0%/25% compared to 20%/40% if the same money had been paid as salary. That's a big difference. Plus there's no NI on dividends. This made it very attractive to pay yourself mostly in dividends rather than paying all of it as salary.

Why would you work an extra 10hrs on top of a 50+hr week for then 50% to be taken off you

Because that's how tax works. They're not exactly pillars of society if they're avoiding tax on a massive level, any more than we consider expense fiddling politicians or big companies with offshore tax affairs a good thing.

Not quite what I meant. They should already be getting a higher wage to compensate for the lack of benefits but also should already be paying tax on it. If their wages are about to drop its because they are tax dodging/avoiding (delete as applicable) through a loophole that is about to be closed, or more likely moved once another way to avoid tax is found

I understood what you meant, and don't necessarily disagree. My point is that the claimed increase in tax revenues from higher wages is government spin: either public spending will increase (higher wages), or services will be cut (work doesn't happen).

Hmm, these contractors, they're gonna be needing them it seems...

The report also said the government would need to retain all its staff and new recruits until the 11th hour of the two-year exiting period to “manage last-minute changes”, suggesting a significant increase in the number of civil servants employed for the remainder of the parliament.

https://www.theguardian.com/politics/2017/mar/13/many-more-civil-servants-needed-to-cope-with-brexit-workload

There's a ton of reorganisation work in the NHS to be done re Breixt on top of BAU and whatever constant reorganisation work is already underway.

No idea what happens when we send 'them' all home - hopefully all these pure-bred British people who's jobs have been 'taken' are qualified medics & clinicians.

[I]I reckon the initial 'hit' will be the Easter weekend, just long enough for them to have had their first invoice paid at net and it dawn on them what it means. [/I]

My crystal ball was working well it seems...

https://www.thetimes.co.uk/article/strike-threat-locums-not-fit-to-be-doctors-q5xxz62ls

https://www.hsj.co.uk/topics/workforce/nhs-in-mexican-standoff-with-locums-due-to-new-tax-rules/7017071.article