Government IR35 Dependent Contractors – More Attacks to Come

Government IR35 Dependent Contractors
Government IR35 Dependent Contractors

Government IR35 Dependent Contractors

There are more Government IR35 Dependent Contractors attacks still to come. A Dependent Contractors is one who is under the Supervision, Direction and control of their client company. For example, IT Contractors would be given specifications telling them what to do.

The Government haven’t finished yet.

Self Employed Contractors

They have completed two major phases of their attacks on self employed contractors but there is one still to come.

They have already implemented the new IR35 rules in the public sector in April 2017.

Recently, they announced that they will roll these out to the private sector too in April 2020.

Dependent Contractors / Independent Contractors

However, there is one phase still to come – and that is the reclassification of freelancers as either Independent Contractors or Dependent Contractors.

The two main recommendations of the Matthew Taylor Report on Self Employment, which the Conservative Government commissioned are:-

  1.  To make the taxation of contractors ‘fairer’
  2. To re-classify freelancers as either Dependent Contractors or Independent Contractors for taxation purposes

They have just announced in their recent Budget that they are going to make taxation ‘fairer’ for contractors.

Phase 3 of Government IR35 Dependent Contractors Attack

Both Theresa May and Philip Hammond have said that it is very unfair, and an anomaly, that contractors earning £100,000 a year pay less tax than a permanent employee earning £100,000 a year.

We all know that this is crazy.

It is not comparing like with like.

However, this ‘anomaly’ is going to be ‘fixed’ in April 2020 when they roll out the public sector IR35 changes to the private sector too.

IR35 Private Sector IR35 Changes

The main changes are that:-

  •  Hirers will now decide the IR35 status of freelancers rather than the contractors themselves
  • There is a new test to help them called the Check Employment Status for Tax (CEST)
  • Hiring organisations will be financially penalised if they get it wrong – in contractors favour anyway
  • Results of the IR35 Test will be sent to HMRC ‘for future reference’
  • Whoever pays the contractor will have to extract IR35 tax and national insurance

Government IR35 Dependent Contractors – CEST Test Results

The test has now been taken 750,00 times.

The results show that:-

54% of limited company contractors are now inside IR35

31% of contractors are outside

15% of contractors are ‘indeterminable’

As hirers will not take a chance on those with an indeterminable test result we can say that almost half of contractors will be forced out of their limited companies.

What most public sector freelancers did when they failed the test was to operate through umbrella companies.

So, can the remaining contractors who are outside IR35 take a break now and relax?

No, they can’t.

Matthew Taylor Report Results

Matthew Taylor has recommended redefining contractors as Dependent Contractors and Independent Contractors.

This would further erode the base of freelancers still able to operate through limited companies.

So, what is a Dependent Contractor?

Will you be one?

If you are dependent on just one hiring company for your income you are more likely to be classified as  Dependent Contractor.

If you are part of a team of permanent employees and contractors basically doing the same work, like IT Contractors on a software project, you are more likely to be classified as a dependent Contractor.

When Will Government IR35 Dependent Contractors Attacks End

So, when will these Government contractors end?

I would say when all freelancers pay PAYE like employees.

After all, that is what has happened in the USA, Australia and many European countries.

After all if you think it is unfair, and an anomaly, that freelancers earning £100,000 a year pay less tax than employees earning the same amount, why would you believe this only applied to some freelancers?

So, don’t think you can now relax if you think you are outside the scope of IR35 as defined by the CEST test.

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