Government Cheating Contractors – Plans to extract money by Intimidation

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Government Cheating Contractors
Government Cheating Contractors

Government Cheating Contractors of Tax

With the Government’s new rules stating that contractors who work in the public sector should sit an IR35 test, is the Government cheating contractors out of money they don’t owe them?

Recently, they decided that contractors in the public sector should no longer decide their own IR35 status.

It used to be that if contractors got it wrong they would be pursued by HMRC for the back tax and penalties.

Recruitment Agency Decides IR35 Status

Now the Conservative Government has decided that it is their recruitment agency who should decide the IR35 status of the contractor.

It will be the agency that now will get any financial penalites if they get it wrong.

So, recruitment companies will take no chances. They will force contractors, even if they are not inside IR35, to pay the IR35 tax.

This is extremely unfair. The courts may take a dim view of it.

Government Departmental Guidelines

Remember that these are not new laws but Government guidelines for their own departments.

Furthermore, they are going to introduce a new online IR35 Test which contractors will have to sit if they want a contract in the pubic sector.

This online test will be created by HMRC, who as an interested party, should recuse themselves form its compilation.

What is likely to happen is that HMRC will skew it so that it shows that most contractors are inside IR35.

They did that last time with their previous online IR35 test and had to abandon it.

Most Public Sector Contractors Will Fail Test

HMRC have already estimated that 90% of publci sector contractors will fail the test.

How do they know that when they haven’t even compiled it?

90% of contractors are not caught by IR35.

Indeed it is probably the oher way around, i.e. that 90% of contractors are outside of it.

However, the fact that most contractors are outside of IR35 doesn’t seem to matter to HMRC and the Government.

They are going to force them to pay it anyway.

Fixed IR35 Test

They are going to force contractors to sit an online IR35 Test that they have deliberately fixed.

Bu putting the onus on the recruitment agency to decide the contractors’ statuses and then penalising the agency financially if they get it wrong, they are trying to make sure that many contractors who are outside IR35 will have to pay the IR35 tax.

The online test is basically cheating.

Threatening the agencies with financial penalties if they get it wrong is basically intimidation.

Cheating and Intimidating Contractors

So, the Government are cheating and intimidating contractors to pay a tax that most of them won’t even legally owe.

This is like something the Mafia, or organised crime, would do to extract money that they are not owed. They call it a Protection Racket.

The Government are basically threatening agencies with “Make contractors pay money they don’t owe us or we’ll take it out on you”.

The Government knows exactly what they are doing here.

Is this the way a Government of the people should work?

Of course, they can do his with their own departments as they don’t have to introduce new legislation as the are the employer.

Private Sector Contractors Next

However, if it brings in more income, how long will it be before the Government decides that they could extract even more money from contractors by including those in the private sector as well?

They would have to bring in new legislation for that.

However, in the meantime, they can continue to extort money from contractors that don’t owe them the money by intimidating their agencies and using a bogus online IR35 test.

Are the Government cheating contractors?

So, who still thinks the Tories are the friends of small businesses?

Comments below please.

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4 COMMENTS

  1. Most people know that contractors use the system to earn higher rates that full time employment and to ‘legally’ avoid tax bills by playing the system. This is not tax evasion, it is tax avoidance and is not illegal.

    If and when they change the rules it may become illegal and evasion to wrongly define your IR35 status to continue to benefit from tax avoidance strategies, which I assume it currently is if you are investigated and found to have wrongly defined your status.

    Putting this in the hands of contractors clearly leads to most of them defining themselves to their benefit financially rather than maybe legally correctly. Then if they never get investigated they are all good and better off.

    Putting this into the hands of the agencies takes that away and, yes likely they will go with the side of caution and declare IR35 status in most cases even when unsure.

    Not sure this is intimidation or ‘about time’ the government cracked down on tax avoidance loopholes that have been taken advantage of for many years now. They tried to do this with IR35 but it clearly did not work as it was so now they are trying to change it so it does work.

    The good times may be ending, but does that make it wrong or right? Depends how much you have been getting in avoidance and if you lived to your means and expected that to continue forever?

  2. If all of the labour force is subject to being treated as PAYE with existing thresholds, those in contracts with higher daily rate are to be stung. They would not be able to reclaim NIC paid, but certainly not the tax as by the nature of higher rate are likely to contribute more in tax and exhaust personal allowance.

    If such a contractor falls sick (s)he will not be covered by SSP, they do not get paid for their holidays, the rule is “no work – no pay”.

    So is it fair? Perhaps NHS should be exempt from any service provider (nurse, doctor, consultant) working in LTD capacity? Agencies would loose revenue, but the public coffer will be fuller.

    Just a thought

  3. I’m not sure the situation is as dire as is being made out for contractors, or perhaps I’m oblivious to what will materialise over the coming months/years.

    As we all know, the cost incurred by HMRC to pursue an individual contractor with regards to IR35 is in most cases not financial viable, and given the criteria surrounding it is so subjective most cases the pursue an individual contractor, they lose. So quite sensibly they’re both trying to make it more cost-effective to pursue an individual if they operate outside IR35, but also to force contractors to operate within IR35 which they’ve hoped would happen for so long by keeping the rules regarding IR35 so vague.

    What I imagine will actually happen (as I’ve already seen it at one public sector division) is contractors who would have operated via a normal agency will now be engaged via a big-time consultancy i.e. Deloitte, Capita, Arthur D Little etc. They will then be placed back at the same public sector divisions they would otherwise been placed at (I’ve even seen one IT Consultancy encourage contractors to break their non-solicitation clause and go back to the current client via them). The big difference is whilst the rate to the contractor will conceivably be roughly the same, the rate being charge the public sector body won’t be, it will be vastly increased. Those IT consultancies have the legal resource to ensure they can both place contractors outside IR35 by understanding the intricacies and also to fend off HMRC.

    The end result in all this may well be the same contractors doing the same work for the same clients, but at a vastly increased cost to the public sector. 🙂

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