IR35 Prime Minister
For UK IT contractors Theresa May will go down as the IR35 Prime Minister. Despite the disaster it was in the public sector, she decided to go ahead with implementing the new IR35 changes in the private sector too in April 2020. She will be hitting UK contractors from beyond the political grave.
Contractors Paying Too Little Tax
She said “It is an unfair anomaly that a self employed person earning £100,000 a year pays less tax than a permanent employee earning £100,000 a year.”
She said she was going to fix that anomaly – and she has done. It’s almost certain that the big consultancy companies, who see contractors as rivals, would have implanted this idea in her mind.
IR35 Prime Minister Orders Changes in Private Sector
From next April the IR35 rules will change. Previously contractors decided their own IR35 status. If HMRC disagreed with that then, if HMRC were proved correct, they could slap back tax, interest and penalties on the contractor to the tune of tens of thousands of pounds.
However, despite having the choice of all contractors to go after, HMRC normally loses these cases.
How Well Do HMRC Understand IR35?
So, how does a group of people who don’t seem to understand IR35 very well get to put together the definitive IR35 test for the self employed?
In 2017 the Government implemented the new IR35 rules in the public sector.
The Government put the onus on deciding the contractor’s IR35 status on the employer, or fee-payer as they call them.
If the fee payer gets it wrong they are hit with penalties. It’s like a Protection Racket.
Check Employment Status for Tax Test
The Government gave them HMRC’s Check Employment Status for Tax test to help them decide.
So, far only just over half of contractors have passed the IR35 test.That means that the rest will have to pay tax like an employee. It’s reckoned that this will cost half of contractors £14K a year.
However, that would be without any of the benefits. Many contractors started using Umbrella Companies.
No Contractors Using Limited Companies
Some organisations in the public sector are so wary of being penalized that they announced that the would no longer be taking on contractors who are outside IR35. All their contracts would be inside IR35.
This is going to be implemented in the private sector in April 2020. This will be Theresa May’s legacy for UK contractors. She will be known to freelancers as the IR35 Prime Minister.
God help us all!
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Whilst I most whole heartedly agree I am not sure that any incoming PM will have the time or inclination to look at this before it becomes a reality – Brexit is still the No 1 item . I any event the Treasury seem to act unilaterally in a number of areas no matter what the Chancellor may want or say…….