Contractors IR35 Status – Shock as Clients Now to Decide It

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Contractors IR35 Status
Contractors IR35 Status

Contractors IR35 Status

Clients will nw decide contractors IR35 status according to new notes from the Government’s Finance Bill. This will apply from April 2017.

For now, that is just in the public sector.

However, the public sector could just by the ‘testing ground’ to roll it out to all contractors in the next few years.

Contractors No Longer Liable for IR35 Tax

The contractor will no longer be liable for the tax if the decidision is later that he, or she, is outside IR35.

It is now the agency’s responsibility to make sure that the contractor pays the IR35 tax.

So, the client company will decide if the contractor is inside or outside IR35.

So, if the agency is responsible for making sure that the contractor pays the IR35 tax then, presumably, they will just lift it from the contractor’s money.

They will hand it over to HMRC and give the contractor what is left.

Contractors Outside IR35

However, at the moment, the vast majority of contractors declare themselves to be outside IR35.

So, does that mean that it won’t affect most of them?

Not on your nelly!

Online IR35 Test

HMRC are currently working on an online IR35 Test.

They will force ontractors to take the test.

This will decide the contractors IR35 status.

Not only that, but they will have to lodge the results with HMRC who will store it for future reference.

Contractor Working in Public Sector and Private Sector

So, consider the case of the contractor who works in the public sector on one project and then in he private sector in the next.

HMRC will have on file his, or her, test which shows them to be inside IR35 on the previous contract.

So, who precisely at the public sector department is going to make this decision on a contractors IR35 status?

Will it be the project manager who hired the contractor? Or will it be the head of the IT department? Will it be the departmental head of the User department for whom he project is being built?

The Dreaded Human Resources Department

My bet is that it will be HR – Human Resources.

They are the obvious ones – and they would, of course, love it do it.

This, of course, is all very bad news for contractors.

It is of immediate bad news for contractors who work in Government departments.

Medical Locums

Presumably all the medical locums will be affected as well as those in IT. Journalists will be affected too if they are working for he BBC.

HMRC have estimated that when they put their new online IR35 test live, 90% of contractors will fail the test.

That begs the question of how they know that when they haven’t finished creating the test.

Probably aorund 90% of contractors are outside IR35 at the moment.

So, how would 90% of contractors be inside HMRC’s IR35 test?

HMRC Loading the Dice

One must assume that hey are going to load the dice in their favour.

This test will not have any basis in law. Only the courts can decide that.

However, Government departments, like HR, will take this IR35 test as gospel and declare contractors inside of IR35.

The agency will be informed and the agency will lift the money from the income that the department pays for the contractor.

This is grossly unfair and it s sidestepping the Government’s own employment laws.

Where’s IPSE?

Where is contractors’ group IPSE in this? Both Labour and Conservative Governments have felt free to attack contractors with impunity without fear of any electoral consequences.

IPSE has not been effective enough in taking on the Government, or in lobbying it.

Of course, this is only in the public sector – for the moment.

The Government is the employer in the public sector.

Private Sector Contractors Next

However, we all know, deep down, is that once they have seen how it works in the public sector that the Government, after making some changes, are going to implement it for all contractor s in the private sector too.

There may not be many real contractors in the future.

There will just be employees who are taxed as employees but get benefits and ex-contractors who are now taxed as employees but without any of the benefits of employees.

I’m afraid that is the way it is going.

IPSE needs to wake up.If there are no longer many real contractors left there won’t be much need for IPSE any longer.

Although, that may not make much of a difference anyway.

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