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Comment by varispeed | Hacker News Reader

The problem is that salaries in the UK are not attractive as you quickly get on the higher tax bracket. This was made worse when changes to IR35 passed and now if someone works on a b2b basis is likely going to be caught by new rules and it means no more business expenses, having to pay employer's NI, apprenticeship levy etc. and no employment rights. Effective tax rate is above 50% in this case. Independent contractors were competing with companies like Infosys (of which Chancellor wife is a significant shareholder) and these changes pushed by the chancellor make independent developers less attractive for companies. In the end, especially during current situation, where it doesn't matter where you work, companies just seek talent overseas as the recent changes make whole thing too bureaucratic, expensive and the fines for non-compliance can be life changing.

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UK developer here. Can confirm what the above poster is saying, especially:

>The problem is that salaries in the UK are not attractive as you quickly get on the higher tax bracket. This was made worse when changes to IR35 passed and now if someone works on a b2b basis is likely going to be caught by new rules and it means no more business expenses, having to pay employer's NI, apprenticeship levy etc. and no employment rights.

I was directly affected by this and I'm looking to leave as soon as possible.

Leave where? In the EU salaries are even lower. As a contractor in the UK, even with IR35, you can earn after tax well above 7kGBP a month. I earn, without bragging, 10k GBP a month, after tax - although I am not inside IR35. Others tell me they are simply increasing their daily rate to cover for IR35. And no to mention benefits as a software engineer: bonuses, shares, etc if you are permanents, thing rarely met in continental Europe.

> Leave where?

US, Canada, Australia. All have higher salaries for software people, though not all as good as London finance contracting has been.

I earn around the same level you do and am leaving for Australia sometime in the next few months. I don't expect to make anything close to my current contracting income, though I do plan to start a consulting company over there at some point.

"Canada, Australia. All have higher salaries for software people," - I was under the same false impression that either of the two countries have better pay. Turned out to be quite false, at least Canada has significantly lower pay, and far behind tech. Testament to this is the fact that I got a work visa for CA and turned it down once I did my due diligence. Brexit "refugees" that went to Canada share the same impression.

However, both CA and AU have other benefits. While pay is lower, the standard of living in my view is much higher and are much safer. For those two reason I think they might be a good choice, but not pay. Correct me if I am wrong, as I am still considering a decent alternative to the UK - preferably somewhere safer and with better quality services.

I've worked in Australia, and compared to the pay of most salaried programmers in the UK, the money on offer was much better. Hell, doing the same damn job for a big corporate over there as I had done in London (same team and everything) netted me a 60% payrise.

Comparing to London contractor money, sure it'll be less and I'm preparing for that, but compared to most salaried work. Look at the averages - Average software engineering salary in Canada $102,866. That average in the UK? £31K. Just over half the Canadian figure.

(I'd allow that the average figure in the UK does not paint an accurate picture because a lot of the higher skilled people opt out of employment to go it alone, like ourselves)

I very much agree on the standard of living aspect, having had direct experience of life in Australia. There's just more space, and more respect for public facilities etc.

The issue is I don't know how these average salaries are calculated. I can confidently say that I know no one at a Senior level working on less than 60kGBP a year, and I don't imagine the bulk of engineers are junior or mid level. I do know however that people who earned a lot once they moved to either CA or AU, they earned less - but were happy given the benefits in previous comment.

> I've worked in Australia, and compared to the pay of most salaried programmers in the UK, the money on offer was much better. Hell, doing the same damn job for a big corporate over there as I had done in London (same team and everything) netted me a 60% payrise.

New data points are always welcome - I might have to read more on the topic as I am clearly missing some data in regards to AU (my peers told me otherwise, maybe they do something wrong).

> I know no one at a Senior level working on less than 60kGBP a year,

I don't think I know anyone in our sector that's currently salaried so I can't say I have many personal datapoints there. However I do think that outside of London the UK pays salaried software folks pretty badly.

> I do know however that people who earned a lot...

Maybe there's less variance and less room at the top end in CA and AU? That could explain our conflicting views.

My last experience over there was not as a "senior", though I had a few years experience I wasn't at the top of my game compared to today.

£60k gives you about £3650 after tax. It could feel like a lot if you live in a flat share and don't plan to start a family, but otherwise this just gives you a very basic life. Definitely not something you would expect after committing your life to this trade. I have a friend who is a self-employed cleaner and she makes much more than that and is much less stressed (what I mean by this is you need to commit far less time to learn how to clean and you are unlikely going to be woken up by a dream about that corner you forgot to clean).

Can't argue that being a self employed cleaner would be lower stress. What's your friend charging and what kind of work does she do? I only have limited experience with paying cleaners in the uk, but she must be charging more than those I've seen.

10k£/month is unfortunately not that high considering London's cost of living and property prices, and when accounting for downtime in between contracts it's not that great.

> Others tell me they are simply increasing their daily rate to cover for IR35

"Inside IR35" contracts are bad for a variety of reasons, such as the extra control the client has over you as well as the requirement to use an umbrella company (technically it's not required - you can very well deduct & pay the relevant taxes on your side, but given the liability shift, clients are unlikely to agree).

£10K a month after tax if average is more than enough even for London a good 2 bed flat in a very good area is around £2500 a month.

It’s not US salaries but £120K after tax a year would put on on the property ladder even in central London rather quickly.

You don't need to use an umbrella to work inside IR35 (but umbrellas are trying to spook companies as they have a horse in that race) and you retain more autonomy, but you need to have the so called Fee Payer that will deduct all the taxes before money lands in your company account. Some umbrellas also offer the fee payer service.

> are simply increasing their daily rate to cover for IR35

You have to increase the rate by well over 30% and that puts you into territory of what agencies charge. Company might as well drop you and go with an agency then as they don't want to deal with IR35 as there is too many misconceptions and fines are heavy for getting it wrong.

The US, most likely.

>although I am not inside IR35

That's what I meant though, this is going to end soon. There will be no "outside IR35". One of the more foolish decisions of the UK state recently (and they're not lacking in that department).

> There will be no "outside IR35".

If the end client decides it is so (and assumes liability), you can still be outside. If the end client is a "small business" then there is no change*.

The best thing I can think of for those who want to continue to operate as an independent business is to actually become more business-like. Start a consultancy with a couple of like-minded individuals, based on your skills. Let clients and agents know you are available to deliver work on a fixed-cost basis, not join a project on a day rate.

But I agree, the whole thing is a nasty mess, and it's going to screw a lot of people.

(*though I imagine HMRC will be launching many more investigations into such small businesses. This is the bit that gets me, they leave a grey area in which you can get screwed).

There is no incentive to have contractor work on an outside basis because that gets too complex and has no tangible advantages for the client. The status determination process is also a fiction, because the client can specify relationship to meet the in-scope criteria in the contract and there is no room for appeal. Essentially a new class of employees without rights has been created.

There is a financial incentive, if the client company is certain that the work they want done is outside, for instance if they are willing to completely cede control, and pay a lump sum for well defined work. Closer to real freelancing/consultancy than a lot of current 'contracting' positions.

But yes I agree, that is what's happened. Umbrellas must be rubbing their hands with glee.

Hang on, you're arguing the skills shortage is because salaries are not high enough...

...and at the same time also arguing that the skills shortage is because big companies are offshoring jobs overseas to reduce their high salaries?

Another way of saying it, there is shortage at the price point the most companies are currently willing to pay.

Mind you, the rest of Europe pays even less, but now UK is less attractive for an European to move in.

It makes sense that high taxes can simultaneously cause both those problems (the cost of employees goes up a lot even as salaries don't go up enough to attract workers yet), though the way they stated it was rather nonlinear.

I don't think this is the same as offshoring/outsourcing to the lowest bidder which obviously gives you very low quality work.

This kind of offshoring works for both sides because they are offshoring to a location where the supplier (developer, etc) ends up better off (they lose less money to tax for example) and thus still provide quality work.

Overall, in this case, everyone wins, except the greedy & short-sighted UK government, which I can't really sympathize with.

I don't see how these are contradictory.

If you're not getting paid enough, you're more likely to leave.

If companies aren't hiring as many people locally, you're also more likely to want to go and find work elsewhere.

> you're more likely to leave

Where to? Only America pays more, assuming you can get a visa, and while UAE taxes less the lifestyle there has fairly limited appeal.

This is exactly my issue!

I started contracting on £x per day, a year ago they put me In-Scope of IR35 and my day rate went down by 13% due to a cost natural approach by the client. I then have to pay tax on that.

Before I didn't pay myself the whole amount as I wanted to save money in the company for a rainy day!

I am now thinking about moving to the UAE

This is indeed another consequence - you cannot raise capital for your company with your own work anymore. For example if you have a little start up idea you could have done some contracting and then have funds to develop it. Now you can either lend money to your company or look for an investor - it means you'll have to share your business with someone or be at mercy of banks. I can imagine this cut so many wings...

This does seem to preclude developing a company from being a one-person thing to a bootstrapped entity in its own right.

I know someone who did that around 05, it was very effective. Eventually he grew it to around 10 people, all of whom could be farmed out for contracts when the company itself wasn't quite cutting it.

Perhaps a model of contractors collecting together in small groups to carry on, will work.

Perhaps a model of contractors collecting together in small groups to carry on, will work.

I've seen this happen a bit in the US, especially in the Rails consulting space. I think having loosely formed "agencies" made up of complementary partners where the sales pipeline goes through the agency is definitely a potential way forward, but seems uncommon in the UK so far. The downside is independent contractors with poor networking skills might struggle to find people to collaborate with.

I love this idea! Do you have some names of agencies that do this?

I don't want to point to ones I remember from back in the day in case I got their model wrong, but a current company doing something like this at scale would be https://x-team.com/ .. I think it could work at a much smaller level though.

Thanks :)

Some friends and I got like 5% into building a website for this a year or so back - an analogue to a CV site where you could upload your team profile, competencies etc.

As with many ideas like this, we kinda lost interest and moved on to other things. It's possible there's a gap in the market.

I'm not very familiar with IR35 as I've always been very multi-client focused but does this now mean a "contractor" earning >100k will be paying 40% income tax + 20% loss of personal allowance + 2% class 1 NIC and 13.8% employer NICs marginally in the 120-124k range? That's like 75% tax.

(I know people in that position would be dumping 40k into their pensions, etc. I'm just speaking hypothetically or for those earning, say, 180k-200k somehow.)

This is an excellent overview.

My 140 characters version is Salary stagnation and outsourcing is still the problem

I think the contracting/consulting market is going to fragment into 'genuine' consultancy and people who are effectively temps. The temp end of the market is going to need to push hard to get the reward level back to where it has been over the last few years, because of these changes.

Honestly I think the real solution to the issue is to tax gains from assets (i.e. dividends etc) higher than salaries, rather than lower, then this whole thing could go away.

The rich mostly pay themselves in dividends and lower tax on that is a sacred thing for them. This is another reason why they preferred to go with IR35 and destroying a thriving sector rather than making the NI payable on dividends.

https://www.independent.co.uk/news/uk/politics/jacob-rees-mo...

Absolutely, it's crazy that they get away with it really.

This is frankly a problem all over (the IR35 / IT issues are true, but hell, salaries all over are ... less than one would choose if the power balance between capital and labour was more equitable)

I honestly don't know how to solve it absent massive Government action, and while I generally applaud it, its unlikely to be effective / sustainable.

Maybe a big trades union resurgence. Possibly a truly massive increase in the number of small (not individual) service firms.

Salaried work in the UK in general pays a pitiful amount, I agree.

It has always seemed absurd to me that the returns on productive assets are taxed lower than the returns of the sweat of your brow.

Changes to IR35 add this construct of "Employment for tax purposes" which means you only pay tax like an employee (and employer), but don't have any employment rights - that includes no right to unionise.

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