Contracting: The Great Tax Scam

Posted 19 Jul 2005 at 02:08 UTC by lkcl Share This

Post Dot-Com Boom, the employment market is now full of technical ex-employees seeking work. Contractors, who used to earn at least twice that of slaves^H^H^H^H^H^Hemployees, are now competing with those less experienced ex-slaves who haven't a clue about negotiation of contracts: they just want money, any money.

Contractors are used to negotiating deals where they retain copyright, and the contractee has the expected minimum of rights (use, display, modify, perform distributed works) and, here in the UK, if you don't sign anything, this is the default contract. Therefore, good and experienced contractors have a _significant_ amount of intellectual property that they have access to, can therefore call upon, dust off and provide, and can therefore complete the work much quicker and are therefore worth the money.

Slaves, who haven't a clue about contracts nor who are used to owning their own intellectual property (they're slaves: did i mention that?) and they are desperate for cash, come waltzing in and take what they can get.

Companies, realising that they don't have to pay contractors tax or benefits, offer what they think they can get away with, in return for getting as much as they can get away with (owning all the intellectual property and not even guaranteeing to provide sufficient resources or information for the contractor to complete the work!).

From a "tax" perspective, the situation has got so bad that, here in the UK, the Inland Revenue has introduced "IR-35" which states that if a contractor is equivalent to an employee (e.g. only doing work for one company), then for tax purposes they ARE an employee. Oh, and the contractor and the contractee both pay tax AND fines, and a "contractor" can expect to lose EIGHTY PERCENT of their income. Oh, and they are still bound by the terms of their contract which of course will usually mean that they have no rights to their work: they're a slave. again.

The thing is that when you look at the facts, "IR-35" is actually extremely sensible (if tax at all can be considered sensible).

My questions to advogato readers are: what in seven hell's name can be done about this? what advice can be given to slaves (other than stay the hell away from contracting)? and, to long-term contractors who have seen their income slashed by over 75% due to corporate greed, what negotiation advice and tactics should be deployed in order for them to maintain their edge (not ending up in a contract that's equivalent to wage-slave employment and thereby losing future income due to loss of all their intellectual property on which they make their living)

... or is it too late?, posted 19 Jul 2005 at 02:22 UTC by lkcl » (Master)

random-reading today - unrelated but via slashdot's reference today to this - seems somewhat relevant thought i'd post links.

Faced Before, posted 20 Jul 2005 at 00:29 UTC by ncm » (Master)

This question has been asked before, and answered. An answer in the past, that succeeded in bringing into existence the "weekend", is called Collective Action. Institutional education has lately succeeded in weakening such efforts to the point of collapse. People in Western countries are now given slave indoctrination (adopted wholesale from old India) almost out of the cradle.

The only long-lasting answer is to reclaim education from the slavers. Is it still possible? India's caste system was stable for two millennia, and only conquest has ever upset it.

Get a grip., posted 20 Jul 2005 at 02:35 UTC by AlanShutko » (Journeyer)

Calling people slaves because they're eating your lunch by working under different conditions than you won't help you succeed. If by keeping your IP, you can provide quicker and higher quality results, then why aren't you winning? Maybe you aren't marketing yourself right? This post certainly seems to suggest that.

In the US both contracting models are widespread. Companies choose between a consultant like you who can dust off previous code and provide a turnkey solution and contractors who will work in-house with the companies IP and provide a solution the company owns and can control. Both situations are valid choices, whether you like it or not.

Get over yourself and try to provide a decent business case for companies. Either that, or adapt to the market... it doesn't care about you.

Re: Get a grip., posted 20 Jul 2005 at 03:36 UTC by tk » (Observer)

"Market yourself right" and "adapt to the market" are stock phrases which I keep hearing again and again. But what do they mean? Is there a marketing strategy that doesn't require too much moolah and that can guarantee a reasonable (say at least 50%) chance of success?

Besides, I don't see how working as a de facto company employee but without any employee benefits is a "valid choice". It's nothing short of exploitation.

No guarantees, posted 20 Jul 2005 at 13:17 UTC by AlanShutko » (Journeyer)

It's not exploitation. You just make sure your bill rate is high enough to pay for benefits yourself. I'm technically a W2 employee of KPG, Inc, but I work full time at one client, working on their IP, and they own the rights. I have all the usual benefits: matching 401k, health insurance, dental, etc. How am I being exploited?

There's no marketing strategy that can "guarantee" any amount of success. Never has been in any field. But people who work hard at educating potential clients how it will be better for them generally do better than people who rant about how potential clients are slavers and exploiters.

experiences, posted 20 Jul 2005 at 13:35 UTC by lkcl » (Master)

thank you for the replies.

alan - the comments i make here i would not in any way shape or form put anywhere NEAR potential clients. also, your comment "ensuring a high enough bill rate" - how _can_ contractors ensure a high enough bill rate under circumstances where former employees now calling themselves contractors in desperation to bring in money are, due to lack of experience, underquoting and undercutting?

Besides, I don't see how working as a de facto company employee but without any employee benefits is a "valid choice". It's nothing short of exploitation.

exactly :)

i invite you [in the uk] to reflect on this: IR-35 would not have been introduced if the Inland Revenue's tax collection hadn't been completely hammered in the computing sector by a flood of [pseudo] contractors.

remember: the Inland Revenue loses big-time _both_ ways on contractors: the "employer" no longer pays 40% tax (over-and-above what they pay employees!!) and the "employee" no longer pays [approx] 30% tax...

IP as Capital, Supply and demand, posted 20 Jul 2005 at 17:07 UTC by nymia » (Master)

It looks like the article is referring to IP as capital. In that sense, contractors should be aware of it and adjust. Companies have different ways of hiring contractors, one may have to figure that out before diving into any agreements.

Certainly, price of contracts will vary and follow the law of supply and demand. That's just the way it is.

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