What Are Dependent Contractors – Meaning / Definition

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Dependent Contractors
Dependent Contractors

Dependent Contractors

Are you now a Dependent Contractors who will now have to pay the same tax as permanent employees.

The long awaited Matthew Taylor Report was published last year and we have the long awaited Government response to it.

The Government has decided to implement 52 of the 53 recommendations.

It recommends that some Independent Contractors should now be classified as Dependent Contractors.

They want changes to “minimal and ambiguous” currently legislation to ensure clearer distinctions between employees, the self-employed and workers who rely on one company for their main source of income”.

Matthew Taylor Report

It seems that Matthew Taylor wants to redefine those who get their money primarily from one source as Dependent Contractors in law.

He wants clearer definitions that “better reflects the reality of modern working arrangements”.

The main test is Supervision, Direction and Control.

If a contractor is given work by a Project Manager, who sets the time period and who monitors the contractor’s progress, then the contractor is a Dependent Contractor.

This applies to all IT contractors who are brought in as extra bodies on projects.

Most Contractors Will be Dependent Contractors

So, most current IT Contractors will be Dependent Contractors in the future rather than Independent Companies as they now are with Limited Companies.

Going forward, the Government will tax them differently from Independent Contractors.

When we say differently, you can assume that they will pay more tax.

They will also receive more benefits – but this will make them cost around 25% more to clients.

Rates Will Fall for Dependent Contractors

So, either clients will hire fewer of them or Dependent Contractors’ rates will fall – or both.

One would expect the Government to pay the IR35 tax in full.

It is expected, as in the public sector, that most contractors will have to dump their limited companies.

Most will go for umbrella companies rather than pay the IR35 tax.

High Paid Contractors

Although the national press are all talking about this as something that affects the gig economy and low paid workers, that definition above would bring IT contractors and other high paid contractors into it.

Although there are some IT contractors who have multiple clients, the vast majority work for just one client company at a time. The majority are supervised, directed and controlled by their project managers at their clients’ firms.

And there appears to be nothing in the report which says they will treat higher earning contractors differently.

The report, and the press, concentrate on the benefits accruing to low paid workers like pension contributions, holiday pay and sick pay.

However, it would also mean that IT Contractors and others would be taxed as if they are employees of the company.

They would, for all intents and purposes, be temporary employees of the company as opposed to permanent employees.

Matthew Taylor Report Recommendations

Of course, the Government didn’t have to accept those recommendations.

Contractors groups like IPSE lobbied hard to get higher earning contractors outside of the remit.

However, Matthew Taylor recommends to the Government that they make taxation ‘fairer’ for permanent employees v contractors.

I think we all know what he means by ‘fairer’.

Prime Minister’s View of Contractors

It seems as if Prime Minister Theresa May and Chancellor Hammond are a mind to do this anyway.

Both of them said at budget time that it is not fair that a contractor earning £100,000 a year should pay less tax and NI than an employee earning the same amount.

That is not comparing like with like.

However, that is the thinking of the Prime Minister and Chancellor.

Will this go through the Commons?

Well, there may be some backbenchers who oppose this.

However, Labour would go even further than this and would legislate more heavily on the gig economy and abolish umbrella companies completely.

So, they would hardly oppose this.

It looks as if we are in for yet another attack on contractors and their livelihoods.

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