New Online IR35 Test Blow for Contractors from April

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New Online IR35 Test
New Online IR35 Test for Contractors

New Online IR35 Test for IT Contractors

So, there’s going to be a new online IR35 test for contractors. the Government will force employers, or fee payers, to force contractor to take the test to work out their IR35 status. We now have a better idea what the Chancellor intends for UK Contractors when he stands up to give his Autumn Statement next Wednesday.

The main proposal is for a new IR35 Test for IT Contractors, and other freelancers.

This time the onus is on contractors proving that they are outside IR35 rather than HMRC having to prove that they are outside IR35.

Off Payroll Employees

The Conservative Chancellor, George Osborne, had details leaked to a couple of newspapers last week saying said that he was going to make contractors go on the payroll of client companies if they had been there more than a month.

While this could still be the case, it is not automatic.

Contractors Forced to Do an Online IR35 Test

Once they have been at a client’s site for a month, personal service company contractors will have to do an online IR35 test to prove that they are outside IR35.

The details of those who fail the IR35 test will be kept by HMRC for future reference.

The new online IR35 test will test to see how much Supervison, Direction and Control that the contractor is under at a company.

It is not understood yet who will make sure that contractors do the test.

Sitting the New IR35 Test

It may well be the client company who insist that the contractor sits the new online IR35 test.

Presumably, if the contractor fails the test and is inside IR35 the client will either have to take him, or her, on the payroll or dump them.

The leak, at the moment, only refers to personal service companies so it is not known what effect it will have on umbrella company contractors.

The original leak in the Guardian and and Daily Mail seemed to suggest hat the changes would affect all of those who are paid and taxed through an intermediary, i.e. a personal servcie company or umbrella company.

So we will have to wait till Chancellor Osborne’s Autumn Statement on Wednesday to find out.

Proving You are Outside IR35

The onus will be more, in future, on those who hire contractors, i.e. client companies, making sure that the contractors they have hired aren’t caught by IR35.

It will also be on contractors to prove that they are outside IR35 rather than for HMRC to prove that they are inside IR35.

Another problem could be the new online IR35 test itself.

HMRC Cooking the IR35 Figures

HMRC have had previous on this.

Along with the Professional Contractors Group (now IPSE), HMRC devised a Business Entity Test that would show whether contractors were inside IR35 or outside IR35. Take it yourself and see how you would have done.

Unfortunately, HMRC decided to break ranks when it came to giving weighting factors and scores to the different questions. They also unilaterally decided the number of points that you needed to be inside and outside IR35.

They made the threshold ridiculously high so that virtually every contractor would have been caught by IR35.

They had no basis in law for doing this.

However, it was just advisory and a guideline for IT contractors – although some Government Departments used it to test contractors.

New IR35 Test Will be Definitive

This new onlne IR35 test will be more than advisory, though.

If IT Contractors fail it they will be treated by client companies as being caught by IR35 with all the consequences there.

It would be interesting to see what basis in law they have for this.

Contractors Could Sue HMRC

If a contractor was kicked out of a contract because this test said that he, or she, was inside IR35,what would happen if the contractor tested this in court and won his, or her, case?

HMRC would be taking a hell of a risk in putting contractors at financial risk for a test that may, or may not, meet legal conditions in judging whether a contractor is inside IR35 or outside IR35.

Creating an online IR35 test doesn’t make it legally correct.

Only the courts can test this.

Conservatives Worse than New Labour

For UK IT Contractors, and other freelancers, the pain goes on.

There is no clear, measurable line that says whether a contractor is inside or outside of IR35.

This new online IR35 test is just another huge distraction for contractors who just want to concentrate on their contracting careers without having to jump through yet more hoops.

IT Contractors thought that New Labour, who brought in IR35, were bad.

It looks as if the Conservatives are going to be much worse.

With the LibDems out of the way, the gloves are off for the Conservatives as far as contractors are concerned.

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3 COMMENTS

  1. I think there is an over reaction to say the contract marketplace will die. Clients still need contractors to carry out projects, the work itself won’t go away and continuing popularity of contracts to meet clients needs won’t go away. The other salient fact is George Osborne does not care whose payroll you are on as long as all your income is processed as PAYE. Clients won’t want contractors on their payroll but instead agencies will place contractors on their payroll deducting off employers NI from the gross day rate. Positions will still be advertised at day rates but with an asterisk , underneath saying less employers NI , employees NI and any Income tax deductions. Contractors won’t need limited PSC or umbrella’s.

  2. Yes, I think you are right. It is more likely that it will be the agency that takes contractors on their books rather than the client. That’s the way it works in the US where there is a two tier system with contractors similar to what we have here and those who are, to all intents in purposes, employed by the agencies.

    The agencies act just like the UK PAYE umbrella companeis deducting tax from a contractor after expenses and sending it off to HMRC. The only diffference is that they don’t charge contracors a monthly fee just for paying them.

    Why umbrella companies were ever needed I don’t know when this model could have been used form the start.

  3. The only additional cost will be PLI, I suspect agencies will have to take this out for their “employees /contractors” and make a supplementary deduction for it. There will be some small savings, no accountants to pay, no companies return annual fee, no point in being in IPSE, no need to have your contracts reviewed for IR35 compliance, but no opportunity to book any expenses to your business .

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