Conservative Party IR35 Policy – Contractors Face Tory Wipeout

Conservative Party IR35 Policy
Conservative Party IR35 Policy

Conservative Party IR35 Policy

The Conservative Party IR35 policy put forward will almost completely destroy the contracting profession. The Tories are making a massive attack on contractors using personal service companies. Despite everything that the Conservatives and Labour party have done to contractors, the Conservative Party say there is still only 10% compliance in this area. That means they want to have ten times as many contractors paying PAYE as currently do.

That is a nightmare thought for UK freelancers.

Contractors Questions on Conservative Party IR35 Policy

  1. What are the major political parties policies on IR35 and contractors?
  2. What did the Conservatives promise on IR35?
  3. What did the Conservatives Deliver on IR35?
  4. What did the Conservatives do with IR35 in the public sector?
  5. Who now decides a contractor’s IR35 status in the public sector?
  6. Were there any problems rolling out the IR35 changes in the Public sector?
  7. Was Conservative party IR35 policy a success in the public sector?
  8. What are the major banks doing about IR35?
  9. What percentage of contractors are testing outside IR35?
  10. What’s in the Matthew Taylor Report which will affect contractors?
  11. What are Dependent Contractor and how will they be taxed?
  12. Will Dependent Contractors get employee benefits?
  13. What Percentage of Contractors do the Government Believe to be IR35 Compliant?
  14. What do the Conservatives Intend to do as regards contractors and IR35 after the Election
  15. When Will Conservative Party IR35 Policy Be Implemented

What are the Major Parties Policies on IR35 and Contractors

To help contractors we are going to look at the policies of the 4 major parties as they affect contractors. We are also going to look at the Labour Party, the Lib Dems and the Scottish National Party (SNP). Then we will have a summary article to help contractors decide whom they should vote for.

We are only going to look at this from a very narrow angle, i.e. how each of the parties policies affect contractors.

Readers may want to vote for one of the above parties on other issues like Brexit, immigration or the NHS. However, this is outside our scope. We will concentrate on party policies on IR35 and other contractor issues.

What did the Conservatives Promise on IR35

The Conservatives started off pretty well on IR35. It was New Labour who brought it in. The Professional Contractors Group (now IPSE) lobbied the Conservatives hard and thought they had got a promise to abolish IR35 from them before the 2010 election.

Indeed, the PCG rushed out a Press Release saying so. However, despite private assurances that they would abolish IR35 their 2010 Manifesto only said that they would “look at IR35 again”.

What Did the Conservatives Deliver on IR35

Once they were elected they did exactly as they said they would on the packet. They “looked at” IR35 – and decided to keep it. Not only that, they said they would STRENGTHEN IR35.

Contractors and the PCG felt betrayed. They were fooled by a false promise – and that was even before the days of Boris Johnson.

Cameron and Osborne were as good as their word and did strengthen IR35.

Despite laying off thousands of HMRC workers, they hired 30 new tax officers to monitor IR35 compliance. They hired them in Edinburgh, Croydon and I think the last one was Salford.

What did the Conservatives Do With IR35 in the Public Sector?

Then they decided to change the rules in the public sector. Previously contractors decided their own IR35 status. If they were incorrect then they would have to pay back tax, penalties and interest.

However, HMRC had very much an incorrect view on which contractors were inside IR35 and who is outside. That is shown by them losing 80% of cases at employment tribunals.

So, the Conservative Government decided to change the rules.

In April 2017 they changed the rules in the public sector where they are the employer.

Who Now Decides a Contractor’s IR35 Status in the Public Sector

Instead of contractors determining their own IR35 status, hiring companies would do this. The agency would be responsible for deducting tax and National Insurance from contractors who were inside IR35.

There was an additional twist.

Those companies that got it wrong would be hit by penalties.

Rather than take the risk of penalties, some public bodies decided to put a blanket ban on using contractors who operate via their personal service companies.

That would mean that contractors who are legally outside IR35 would be treated as if they are inside IR35. Among the public sector organizations to do this were the NHS, MoD and HMRC.

Were There Any Problems Rolling Out the IR35 Changes in the Public Sector

There were massive problems in these public sector bodies because of this. IT systems got delayed because IT contractors were leaving in droves. Both the NHS and HMRC have now rowed back on this and now take some personal service companies contractors.

Despite the enormous problems caused by this the Conservative Government decided to roll the IR35 reforms out to the private sector in April 2020.

This is the equivalent of Margaret Thatcher trialing the poll tax in Scotland and then rolling it out to the rest of the UK. There was enormous resistance in Scotland to it. Ignoring this cost Margaret Thatcher her job.

Was Conservative Party IR35 Policy a Success in the Public Sector

Now the Tories are about to repeat this mistake with IR35.

HMRC are telling the Government about the extra tax they got from the public sector and can get even more from contractors in the private sector.

However, this has been a very one-sided Cost / Benefit Analysis. They have not taken into account the costs in terms of delayed IT systems when IT contractors jumped ship.

So, regardless of the problems when the IR35 reforms hit the public sector, the Conservative Government are going full steam ahead in the private sector.

What Are the Major Banks Doing About IR35

Already all the major banks, once again seemingly acting in tandem, have said that they will operate a blanket ban on the use of personal service companies. All contractors will be PAYE from April and some before that.

Major banks issuing blanket bans on contractors include:-

  1. Barclays Bank
  2. HSBC
  3. RBS
  4. Lloyds Bank
  5. Tesco Bank
  6. Morgan Stanley

It’s astonishing how often the UK’s major banks all come to the same conclusion on an issue affecting them.

Companies are being intimidated into blanket bans by the threat of having to pay fines if they get it wrong. They are taking no chances and making all their contractors pay PAYE. That’s even if the contractor would test outside IR35.

What percentage of contractors are testing outside IR35

However, around 54% of contractors who take HMRC’s much criticized online IR35 test Check Employment Status for Tax (CEST) actually pass it.

So, are the Conservatives content now with this?

Not a bit of it!

Before the current IR35 changes are even implemented they are plotting further raids on freelancers’ pockets.

What’s in the Matthew Taylor Report Which Will Affect Contractors

They still haven’t implemented the Matthew Taylor Report which they commissioned.

Matthew Taylor said that there should be three categories of worker:-

  1. Employees
  2. Independent Contractors
  3. Dependent Contractors

What are Dependent Contractors and How Will They be Taxed

Examples of Dependent Contractors would be contractors working as extra bodies on an IT project. They would be dependent on project management telling them what needs done and what to do.

Examples of Independent Contractors would be Consultants or those using skills and knowledge on a project that others don’t have.

Will Dependent Contractors Get Employee Benefits

Matthew Taylor recommended that Dependent Contractors would have to pay PAYE like and employee. He also said that these Dependent Contractors would get employee benefits like sick pay, holiday pay, maternity pay etc.

The Conservatives decided that they would take up his idea of Dependent Contractors. However, they decided against giving them any employee benefits. Once again contractors would only be ’employees’ for tax purposes only.

What Percentage of Contractors do the Government Believe to be IR35 Compliant

Moreover, despite all the damage that both Labour and Conservative governments have done to contractors in the 20 years of IR35, astonishingly, Treasury Minister, Jesse Norman, said, when answering a question on IR35 in Parliament that there was only “10% compliance in this area.”

So, this appears to suggest that the Government believe that PAYE under IR35 is only being paid by one in every ten contractors who should be paying it.

That’s an absolutely astounding mirror into the minds of the Conservative government.

That’s despite the fact that Chancellor Sajid Javid, a number of years ago, called for ‘the silly IR35 tax” to be repealed.

Theresa May and Philip Hammond once said that “It is an unfair anomaly that self employed workers earning £100,000 a year pay less tax than permanent employees earning £100,000 a year”.

This is flawed logic – but the Conservatives believe it

What’s more they intend acting on it.

What do the Conservatives Intend to do as regards contractors and IR35 after the Election

According to Boris Johnson and Sajid Javid in the recent Queen’s Speech “We will increase fairness and and flexibility in the labour market by stopping employers and workers experiencing significantly different outcomes from flexible forms of working.”

W would have found out what they meant by that in the November 6h budget. However, that got cancelled because of the election.

When Will Conservative Party IR35 Policy Be Implemented

But it should not be long after a likely Conservative victory that long suffering contractors will find out what they mean by that. Conservative party IR35 policy should be announced in the first Budget after the election

It is likely that almost all people who are currently operating as Independent Contractors using limited companies will shortly be paying PAYE like employees.

Contracting, like we’ve always known it, will be dead forever.

See also Labour to Abolish Contracting Profession

See Lib Dems IR35 Policy – Give Benefits to Contractors

See SNP IR35 Policy – Delay to Address Contractors Concerns

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