Many IT Contractors May be Stuck Inside IR35 Even After Government Reverse Off Payroll Rules

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Off Payroll Rules Reversed by Chancellor Kwasi Kwarteng

IT Contractors were delighted when it was announced, out of the blue, in Kwasi Kwarteng’s mini budget, that the Off Payroll rules set up in 2017 in the public sector and in 2021 in the private sector, would be reversed.

IT Contractors were over the moon with this unexpected good news.

They were then contemplating throwing off the shackles of those Off Payroll rules so that they could operate through Personal Service Companies again with all the advantages that has for them financially.

Why IT Contractors May Not be Able to Throw Away Off Payroll Rules Immediately

However, many of them celebrated too soon.

It may not be as easy as that to revert back to outside IR35 status when they have been operating inside IR35 for the past year or so for those working in the private sector and even longer for those operating in the public sector.

Many companies made their IT contractors sit HMRC’s CEST test to see if they were inside or outside IR35.

Unsurprisingly, most or all of a company’s contractors failed the test and so had to operate inside IR35.

Can IT Contractors Now Revert Back to Using Their Personal Service Companies

Many of these IT Contractors had been operating outside IR35 for years.

Now they expect to be able to revert to their previous status of being outside IR35 and using Personal Service Companies to put heir income through.

However, if these IT Contractors are marked down as having failed the CEST test will HMRC, who have these results, allow those contractors to say that their status has changed when they are still doing the same tasks for the same company who failed them previously?

Indeed, will their client companies allow them to change their IR35 statuses?

The last thing those companies would want is to be raided by HMRC.

Can IT Contractors Simply Go to Another Client and Dump Their Inside IR35 statuses?

Indeed, even if those contractors went to another company and used Personal Service Companies, HMRC might want to know what has changed in their working practices since they were adjudged to be inside IR35 by their previous companies.

Of course we all know that the CEST test has been discredited but unfortunately HMRC has not accepted that.

What Could HMRC Do As Regards Contractors Who Have Tested Positive Via CEST?

So, what could HMRC do?

They don’t have enough employees to chase every contractor.

Well, they could send out a letter to all those contractors at a particular company saying that their statuses should not change.

They could send out a letter to those companies who failed all their contractors via the CEST test saying that their IR35 status has not changed since the test.

Some kind of intimidatory action can be expected.

It will not be so easy for contractors to march into the offices of their client to say that they are going to revert to being outside IR35 again.

Will IT Contractors be Asked Their IR35 Status at Interviews?

Even if they go for a different contract with another client company they may be asked at interview if they sat the CEST test at their previous clients and may be asked what the results were.

It might be easier and safer for client companies to take on new contractors with up to date skills rather than take back on career contractors who have been sullied by failing a CEST test – according to their previous safety first clients anyway.

What Will Companies Who Had Blanket Bans on the Use of IT Contractors Do Now?

Then there are the companies who put a blanket ban on using IT contractors. They are more or less saying that those roles that they used to use contractors for were now all inside IR35.

So, how can they now say that they were mistaken and that those roles that contractors would have filled were actually outside IR35?

Of course, the problems will almost certainly subside as the years go by.

However, IT Contractors should not expect that everything will instantly change for them as they dust off their personal service companies and contact their old accountants.

The repeal of the Off Payroll rules are still very good news.

However, IT Contractors should not expect an immediate U Turn from companies who tested all their contractors positive for IR35.

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

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