IR35 Contractor Blanket Ban Companies Stuffed HMRC Now Say

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IR35 Contractor Blanket Ban inadmissable say HMRC
IR35 Contractor Blanket Ban inadmissable say HMRC

IR35 Contractor Blanket Ban Companies

Those companies who are operating an IR35 contractor blanket ban could be well and truly stuffed. HMRC issued a fresh document on February 27th which said that this is not allowed.

Now many of the UK’s top companies, who came out with an IR35 contractor blanket ban are scurrying around in panic asking HMRC for further clarification on this.

Questions on IR35 Contractor Blanket Ban HMRC Policy

  1. When will the client company be liable for the contractors’ tax?
  2. What examples of companies not taking ‘reasonable care’ are HMRC giving us?
  3. Are IR35 contractor blanket ban companies now in breach of HMRC rules?
  4. Why are IR35 contractor blanket ban companies now in panic mode?
  5. Which companies will fall foul of the new HMRC guidance?
  6. How good news is this for contractors?
  7. Why do we urge caution over IR35 contractor blanket ban legislation?
  8. When will we know if the news on any IR35 contractor blanket ban is good news?

When will the client company be liable for the contractors’ tax

The new HMRC document couldn’t be any clearer. If client companies don’t take reasonable care, and blanket banning contractors is not taking reasonable care, they say, then the client company is liable for their contractors’ tax.

According to this new HMRC guidance document, fresh off the shelf, “The client must take reasonable care when determining whether the worker would have been an employee if they were engaged directly.

“If the client fails to take reasonable care, the responsibility for the deduction of tax, NICs and apprenticeship levy and paying these to HMRC will rest with them.”

What examples of companies not taking ‘reasonable care’ are HMRC giving us

They then give a series of examples of companies not taking reasonable care. Rather than explain them let me quote directly of two examples from HMRC’s guidance document.

“Examples of behaviours which do not constitute reasonable care include, but are not limited to:

  • Determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case.
  • Determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker.”

Are IR35 contractor blanket ban companies now in breach of HMRC rules

I think that all the IR35 contractor blanket ban companies are caught by these two. Hardly any of them are doing individual testing of contractors.

Many of those companies appear to believe that by making all contracts inside IR35 they can get around this. However, this does not appear to be the case from the above.

Unless they are taking contractors on as employees the contractors will still be off payroll workers and status determinations must be made for all off payroll workers.

Why are IR35 contractor blanket ban companies now in panic mode

This clarification must have come as a shock to all those companies who decided that a blanket ban on PSC contractors would get them around this legislation.

However, only those companies scrapping contractors altogether could be said to be avoiding this legislation. And that is only because there are no contractors left to assess.

The IR35 status of all contractors must be assessed. They cannot be presumed to be inside IR35. They can only assess contractors together if there are no variances in either their contracts or working practices.

There is almost always some variation in these. Different agencies have different contracts with clients and contractors. Different projects operate slightly differently. A developer operates differently from a Business Analyst.

Which companies will fall foul of the new HMRC guidance

Those companies who are operating an IR35 contractor blanket ban will fall fool of this new HMRC guidance.

Perhaps HMRC are now aware that this IR35 contractor blanket ban was happening at so many companies.

Only recently, Treasury Minister, Jesse Norman, was asked in Parliament about blanket bans on contractors by some companies.

He answered that he didn’t know it was happening.

It seems strange but let’s give Jesse Norman and HMRC the benefit of the doubt. This new HMRC document appears to blow the blanket banners out of the water.

This is possible as I don’t think that many people expected this to happen. So much so that there had been no HMRC previous guidance on it.

How good news is this for contractors

If this holds, this is tremendous news for contractors. Contractors can go to their IR35 contractor blanket ban companies and show them this document.

Some companies are already aware of it as they have asked HMRC for further guidance on this. One doesn’t feel much sympathy for the blanket banners.

However, this does feel like very good news indeed for the contract profession. It seemed that it was on the verge of extinction.

Why do we urge caution over IR35 contractor blanket ban legislation

One has to urge a little caution here. This is not legislation. HMRC are calling this document “Draft off payroll working legislation”. They state right at the beginning that “This is a draft and may be subject to change”.

And there will be those seeking to change it.

However, one has to say that this has to be the latest thinking from HMRC and the Government as it was published on February 27th.

If this does hold up then the contracting profession will be saved.

When will we know if the news on any IR35 contractor blanket ban is good news

However, we will only know when the Budget is read out.

Is it too much to believe that the contracting profession is now saved? Will there now be a two tier system at all companies with genuine PSC contractors working along with off payroll PAYE workers operating differently?

Here’s the new HMRC document Draft Off Payroll working Document

Are you being replaced by an offshore worker because of the IR35 changes? Do you know anyone else who is? Send me a message in confidence at [email protected]

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For all critical IR35 news and advice for contractors click on IR35 News.

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    11 COMMENTS

    1. This isn’t necessarily a good thing for contractors. This will only affect companies offering inside Ir35 contracts.

      Some of these companies could simply turn around and say that if offering inside Ir35 contracts is also risky they simply won’t have any contractors and will only use salaried staff.

    2. What about companies such as WM Morrisons, who by taking away engagements with PSC’s prior to April 6th are failing to provide an SDS for all PSC contractors whom, between themselves and KPMG have decreed inside IR35, based on the fact that no SDS is required in current legislation?

    3. “Those companies who are operating an IR35 contractor blanket ban could be well and truly stuffed.”

      I can’t see how. The assessment is aimed at the “off-payroll” (contractors) and does not specify any penalties for incorrectly assessing neither payroll employees (i.e. ex-contractors) not PAYE (as their taxes were already deducted).

      Needless to say that this is not a legislation!

    4. This could go one of two ways.
      One of which is more companies going for a blanket ban on taking on any PSC contractors at all.
      The other is finer grained assessments that will mean more work for clients and contractors will likley have the same result.

    5. It simply feels like, as per usual our questionable government is ruining the lives of average people making there way in life. We pay no less tax than our counterparts if anything we pay more. Ignore the big players and attack the average person. Meanwhile back at the ranch we have people making obscene amounts of money on youtube and insta gram. I have paid tax three different types, my own healthcare, insurance, my own courses, pension.. the only perk is claiming travel and 10 pound lunch. I’m simply tired of this Government meanwhile Borris has a divorce a baby and cares nothing about the people but ATTACK contractors again!! Nice move! I hope they see how stupid this law is banks and the like rely on us now what!?

    6. So HMRC threaten the Banks

      Banks react by banning the PSC’s

      Freelancers leave because they have no choice

      Banks outsource offshore in order to continue their development

      HMRC realise that the money has gone and now they threaten the Banks again

      How can anyone trust HMRC

    7. So My Banking client has applied a blanket ban to PSC contractors effective at the end of March 2020.
      Have now outsourced to a company that is providing visas for developers to come in to the country!
      So much for a fair tax system!

    8. This is on HMRC. They could and should have clarified this all months ago… even years ago – but it goes to show how ill-thought out it was.

      It will affect those companies who’ve put in blanket bans. They’ve now either undertaken to get rid of, employed or force-moved freelancers to using umbrella companies. There was little choice for freelancers… but there was a lot of time even this year for HMRC to clarify this.

      I hope those companies that have forced freelancers into umbrella companies are charged the tax though, because they should and could have assessed individual cases… it wasn’t that hard. I understand why they did it though. It was because of HMRC’s complete incompetence and a lack of accountability when they get it wrong (again, and again).

      War gaming this, they could simply try to ban all contractors… but that affects them very negatively as they still need to complete work. If they try to make all contractors employees there’s a huge cost, and potentially means reducing benefits for permanent staff as whole (let’s avoid going down the qualitative side of things, but it’s safe to say that most large organisations carry a hefty amount of ‘weight’ and there’d be an undoubted fall of in output if there weren’t any freelancers, but I’ve written it and it’s true).

      A shake up to avoid disguised employees made sense… this legislation didn’t, and neither did HMRC’s hand sitting until 27/02.

      If it was me making a decision for large companies though, I’d simply sit and wait it out. At worst you’d have to pay some extra to the forced umbrella-based freelancers – but there’s no guarantee that’ll actually ever happen.

      If you’re a freelancer who can afford some time off, you’ve been working for a client non-stop for more than 2 years on a number of projects or 5 years on a single project, it might be sensible to have a 3-6 month break… or at least go umbrella elsewhere (if you’re forced), but keep your LTD going for (hopefully) when this mess is sorted out.

    9. “they could simply try to ban all contractors” – my current client already wants to replace me with permies, but they can’t find any. Currently, the project (major company), will stop on April 6th.

    10. These group assessments or blanket bans are so unnecessary. Contractors taking the pre-ban contracts (usually) check them for IR35 and usually agencies write these contracts with IR35 in mind. Big companies just need to tighten up the wording. It is supremely bad that HMRC took the NHS to court for £4m. I doubt if the HMRC assessed each and every contractor.

      This stupid rule is killing off the entrepreneurial spirit, sending short term contracts abroad and harming tax receipts. Now companies can’t perform small pieces of work that require temporary staff, thus harming business flexibility and profitability.

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