IR35 Legislation was a big success says IT Contractor

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IR35 Tax, HMRC and UK Contractors

A reader, Bill, posted this comment, about IR35 Legislation, after an article of ours about the IR35 Tax.

IR35 Legislation

Every person who is now using an Umbrella Company rather than a Limited Company is a testament to the success of the IR35 legislation.

IPSE (the ex Professional Contractors Group) are just looking narrowly at the amount of IR35 tax that the Government collects. They say it is a failure but is is not.

Yes, it is corrrect that the IR35 tax itself brings in a pitiful amout of tax a year. Indeed if that was the only criteria then IR35 would be a massive failure.

However, that is not the whole story.

Umbrella Companies

Those in Umbrella Companies don’t pay IR35 tax.

However, they pay their full whack of tax. That’s except for a few measly expenses. Whereas previously they would have been able to claim for lots of things when they operated via Limited Companies.

The IR35 tax has been a huge success if you look at the total extra income it brings to the taxman.

It’s reckoned that there are now, approximately, 200,000 Umbrella Company contractors in the UK.

It’s also reckoned that Umbrella Company contractors pay an average of £10,000 a year more in tax and National Insurance contributions than Limited Company contractors pay.

Tax Bonanza

If you do the Maths, that’s a whopping £2bn a year that the taxman is getting because of IR35.

That’s why the Tories, after they got in last time saying they would look at IR35 again, looked at it and decided to keep it.

The panel they set up said that if IR35 was abolished there was a ‘danger’ that hordes of Umbrella Company contractors would get out of them. They would go back to using Limited Companies.

You didn’t need a panel to work that out.

The Conservatives accepted this. However, they went further. Chancellor Osborne said that they would STRENGTHEN the IR35 tax. They hired 36 Compliance Officers to enforce it.

Limited Company Contractors

You would think that the Government would try and force more contractors out of limited companies and into umbrella companies.

After all it is much easier to legislate for and control 250 Umbrella Companies rather than a million contractors with limited companies.

However, in this election, both Labour and the Conservatives are ‘promising’ to cut even the measly expenses that Umbrella Company contractors can get for contractors.

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