Contractors IR35 Private Sector Reforms
The contracting sector was plunged into gloom after the contractors IR35 private sector proposals were endorsed by the Sit Amyas Morse report. There was good news on Loan Charges Loans in that those taken out between 2011 and 2016 will not be counted.
However, that does not disguise the fact that the death knell for contracting in the UK has sounded.
Questions on Contractors IR35 Private Sector Reforms
- What is the problem with the Government’s IR35 Reforms?
- How do companies decide a contractor’s IR35 status?
- What Guarantee do HMRC give to companies?
- What happened when the NHS used HMRC’s IR35 tool to assess their contractors?
- Why are so many major UK companies blanket banning PSC contractor?
- How much disruption will contractors IR35 private sector reforms cause British companies?
- What financial costs will there be to UK industry?
- What will be the cost if many contractors leave companies over IR35?
- Who is to blame for the disruption caused by the IR35 reforms?
- Was Chancellor Sajid Javid right when he said that IR35 was a ‘silly tax’?
What is the problem with the Government’s IR35 Reforms
The problem is not the actual Government IR35 reforms in themselves (although they are not good news). It is the way they are being implemented at our major companies.
The Government are changing the rules so that it is the hiring company rather than the contractor who is now responsible for determining a contractor’s IR35 status. This comes with financial threats if they get it wrong. Indeed the NHS has recently been fined £4.3 million by HMRC.
How do companies decide a contractor’s IR35 status
To help companies decide the IR35 status of their contractors HMRC have come up with an online IR35 test – Check Employment Status for Tax (CEST).
This as been widely ridiculed as being inaccurate. As HMRC have been defeated in 80% of cases against contractors at lower employment tribunals they would not be the best people to put together a definitive test for IR35.
As they have, also, a financial interest in the result they should have recused themselves. It should have been created by an outside independent person or group.
What Guarantee do HMRC give to companies
However, they do give a guarantee to companies. If a contractor is shown to be outside IR35 in the test there will be no comeback on the company if it is later shown that the contractor is inside IR35.
However, this comes with one massive proviso. The data input to the test must be accurate.
And who will judge this? It will be HMRC. They will be the judge and jury.
What happened when the NHS used HMRC’s IR35 tool to assess their contractors
Indeed, the NHS put their contractors through this test. Yet they have now been fined £4.3 million for misapplying the data.
The IR35 reforms were implemented in the public sector in 2017. They will be implemented in the private sector in 2020.
As HMRC are the judge and jury they can interpret the test results and the data input as they choose. There should be an independent arbiter.
Why are so many major UK companies blanket banning PSC contractors
So, it not a surprise that many of the UK’s biggest companies are taking no chances and blanket banning the future use of contractors who operate through a personal service companies. They are forcing their contractors to go PAYE. They are also making any future roles that they hire for inside IR35.
All our major banks have declared that they will do this. So has Vodafone, the first to declare in he telecoms sector.
In the food retail sector Sainsbury’s will have an effective ban on PSC contractors. They are not blanket banning contractors as such. They are putting all their contractors through the test. However, they are telling them that they expect that all but a handful will fail the test.
How much disruption will contractors IR35 private sector reforms cause British companies
Contractors IR35 private sector reforms are causing massive disruption to British industry with the resultant costs. HMRC say that this tax will bring in £3 billion over 4 years. That’s £750,000 a year.
However, when a penny on income tax would bring in £8 billion a year this is a piffling amount of tax. It’s less than a tenth of a penny on income tax.
Yet, to extract this they are going to force massive costs on all of the UK’s top companies.
Not only will there be massive initial costs in testing all their contractors for IR35, there will be ongoing costs as well as they have to test all new applicants for contract jobs before they hire them It all adds to the red tape.
What financial costs will there be to UK industry
However the biggest cost to he UK’s major companies will be in the handcuffs put on hem by this legislation.
Companies are currently working to an optimum in terms of the percentage of contractors and permanent staff that they use in their companies’ projects. Any changes to that will mean that all the UK’s big companies will be handcuffed and will be no longer working to their optimum level in terms of the mix between contractors and permanent staff.
They will be more careful about hiring contractors in the future – even those inside IR35. it will also mean that it will be harder to hire contractors in the future. The best contractors will gravitate to those companies who do not blanket ban contractors from using their personal service companies – or to rival companies abroad.
There will also be a huge cost in the beginning. Because they are being railroaded into paying PAYE by their client companies which will make a big difference to their incomes, contractors are threatening to leave blanket banning companies en masse.
What will be the cost if many contractors leave companies over IR35
They will take with them not only their skills and experience but the business and computer systems knowledge that they have picked up there some of them over years.
This is a huge intangible cost to those companies.
Someone should do a proper Cost / Benefit Analysis on these IR35 Reforms. HMRC have calculated the benefits – which comes to less than a tenth of a penny on income tax.
No one has calculated the cost – and these will be massive across UK industry. Every single major UK company will be hit financially by these IR35 changes.
Who is to blame for the disruption caused by the IR35 reforms
Too many people are putting all of the blame on HMRC.
That’s blaming the monkey rather than the organ grinder. They carry out Government policy. OK, sometimes they are over enthusiastic. However, the Government can rein them in (if they wish) like they have done over Loan Charges.
These IR35 reforms have been endorsed by three Prime Ministers now, David Cameron, Theresa May and now Boris Johnson. They have been enthusiastically endorsed by three Chancellors, George Osborne, Philip Hammond and now Sajid Javid.
Was Chancellor Sajid Javid right when he said that IR35 was a ‘silly tax’
That’s even though Sajid Javid once said in his days of being the MD of Deutsche Bank that the Governments should ‘repeal the silly IR35 tax’.
Well Sajid, the IR35 tax has got even sillier under your leadership. It is going to cost British industry a fortune to bring in a piffling amount of tax and add add lots more red tape to hiring contractors.
This will result in lower profits for UK companies and therefore less tax and fewer people employed These people would have paid tax too.
There is a huge cost to pay for contractors IR35 private sector reforms.
What is happening for God’s sake.
The world is truly going crazy!
Contractors, there is a poll asking which option you would take if your client company decided to blanket ban contractors using personal service companies. I’m told this will only show up on tablets and PCs and not on mobiles. The poll is at the top right hand side of the page.
Note:- One of our readers tells me that ” It does work on a mobile. Just open the menu to view as a Desktop site.”
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