USING CONTRACTORS FOR CALCULATING TAX

The companies now a days are resorting to blanket bans using umbrella-based companies because the public bodies are trying hard to mitigate the risk involved in hiring contractors outside IR35 which has tax liability. Some have tried to incorporate pay as you earn method for tax deduction purposes. This will enable the insurance agencies to take up the burden as much. If you are in the payroll the rate is shown to be increased where as the take home pay remains unchanged.

The effect on the contractors

The contractors too have felt the heat of IR35 bill and they don’t like the present arrangements the agencies have set for them to side step the issue and definitely not buying the pay as you earn method to ward of the bill’s effect. They have started to pick contracts with lower rates, they have also planned to increase their rates to compensate for the tax deductions, the new contracts aren’t taken up and they are avoiding the public sector altogether.

For those who have already taken up the work are contractually bound, and they aren’t in any position to bargain hence left to fend with what the client’s terms are. There are others who have managed to garner favour with other clients who need their services elsewhere where this tax burden is not levied on them. When the contractors try to negotiate a good income even after the tax deduction is by strategizing their rate cards which their clients can’t refuse because they definitely require skilled labour to get their work done.

You will now have to employ the tax neutral strategy by opting for the contractor rate hikes especially in the public sector whereas it would be a great impediment in the growth of private sector. As it is known this bill is being put into force for those workers who were not complying on paying taxes after supplying their services to clients through an intermediary which may be a limited company. Since that worker isn’t a direct employee of the company there were ways of avoiding tax. To curb this IR35 bill has been pushed to get the expected results.

Such employees were also termed as disguised employees as they did the work, but they did not feature in the employee roll. If this bill is passed it would have a significant impact on the income of the workers as they are bound to lose 25% of the net income earned. A company contractor who supplies these workers or mentioned as intermediary will lose thousands in the process. But this move charging such a heavy burden on the workers is seen as bad move and would definitely be a big hurdle for small and genuine business houses.