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
- When will the client company be liable for the contractors’ tax?
- What examples of companies not taking ‘reasonable care’ are HMRC giving us?
- Are IR35 contractor blanket ban companies now in breach of HMRC rules?
- Why are IR35 contractor blanket ban companies now in panic mode?
- Which companies will fall foul of the new HMRC guidance?
- How good news is this for contractors?
- Why do we urge caution over IR35 contractor blanket ban legislation?
- 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
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