The Government’s IR35 changes which were supposed to bring on more money on tax for the Government have been a huge financial flop.
Why is this so?
It’s because so many contractors have got out of the profession.
According to figures produced by IPSE more than a third of contractors have got out of the profession. The actual figure is 35%.
Reasons fr leaving contracting
The main reasons they have got out are:-
- moving into permanent employment,
- working overseas or
- simply not working
As you can see, with reasons 2, 3 and 4 the Government will be getting no tax or National Insurance from those contractors.
Getting Less Tax from Contractors
Even with reason 1 they are likely to be getting less from the ex-contractors as, although ex-contractors will pay the full whack of tax, permanent rates are a lot less than contract rates so it is likely to be neutral at best and the Government are probably getting a bit less tax from these ex-contractors.
Of course, the Governments of those countries where UK contractors are now contributing tax will be delighted.
Contractors Retiring over IR35
Other contractors have just taken the decision that they have enough money saved for their retirement and don’t want to work for rates a lot lower than before once the IR35 tax has been paid.
It always seems to be the case that every time the Government try to grab more tax from contractors via IR35 they end up shooting themselves in the foot and getting less tax from contractors than they got before.
When will they ever learn?