Private Sector Contractors Hit by IR35 Changes – No More Limited Companies

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Private Sector Contractors
Private Sector Contractors

Private Sector Contractors

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It looks like some private sector contractors are going to be hit by the new IR35 changes that the Government are making.

Previously everyone thought that these changes only applied to the public sector.

Public sector contractors will have to sit an online IR35 test if they want to continue to use their limited companies.

However, HMRC put this test together and you would expect that not many contractors would pass the test.

If they fail the test their agencies will have to deduct IR35 tax and national insurance from their income before paying them.

They also risk being investigated for IR35 on previous contracts where they used a limited company.

Government Department will Decide Contractor’s IR35 Status

The Government department will be the arbiter of the contractor’s IR35 status.

Not surprisingly, some departments are risk averse and are saying that they will refuse to deal with any limited company contractors.

Everyone thought that this just applied to public sector contractors.

However, it seems it also applies to private sector contractors who work for companies who supply services to the Government, such as consultancies.

So, if, say Accenture, or another big consultancy, win a big Government IT contract and hire some private sector contractors to help them, those contractors will fall, it seems, under the new rules too.

That was never specified when the Government announced it but it looks as if that is what is going to happen.

Contractors Working for Private intermediary Companies

According to one contractor reader of ITContractor.com “What I’ve not yet seen, but have recently learned about, is that the IR35 related changes apply not only to contractors working in the public sector but also to contractors working for private intermediary companies whose end-user(s) is/are in the public sector.

It seems that they told this contractor that he can no longer use his limited company.

It seems, also, that they are telling him that he will have to get an umbrella company and operate through that.

Contractor Forced Into Umbrella Company

Another contractor tells us “I’ve just been hit with this. I got the offer of a contract working for Aaaa.

“They signed everything off. Then they dropped the bombshell. The end client was a government agency. Therefore, they wanted me to sign with Ggggg as the Umbrella company.

“This was on a Friday before I was due to start on the Monday. I had given notice and finished my previous contract.

“To say I was not happy was an understatement with the last minute information. Luckily my previous client found out and wanted me back – albeit with 2 weeks wasted in between thanks to Aaaa.

Companies Providing Services to Public Sector

This has all been a bit hush-hush.

Have the Government privately told companies that provide services to the public sector that any contractors they use will come under the new IR35 rules?

The Government never made any mention of this when they announced it.

There’s a possibility that the provider of services to the public sector have just misunderstood the rules.

That’s unlikely though.

Why would they suddenly think that they come under rules that apply to the public sector.

The Government must have told them that they fall under the new IR35 rules.

That would be either immediately – or after the service provider asked for clarification.

No Change to the IR35 Laws

The Government doesn’t have to change the laws when they make rules for the public sector.

After all, they can hire anyone they want for whatever reason they want.

However, it now looks as if they can use their muscle to tell firms who supply IT (or other)  services to the public sector that they must comply with the new IR35 rules also.

Indeed, it looks as if they are using that muscle to do so.

The service providers have no choice.

They follow the new rules or they don’t get the work.

Companies Providing Services in Public Sector

There must be quite a lot of companies who provide services to the public sector.

That would take all the private sector contractors who work for these companies inside the new rules.

It looks as if those contractors cannot even take the test to see if they can continue to use their personal service companies.

Contractors Must Join Umbrella Companies

It seems that they are simply being told that they must stop using their personal service companies. They are being told to join an umbrella company.

That will cut their annual average income by about £15,000 a year which is a massive hit.

It looks as if the Government want to stop contractors using limited companies completely.

They’ve started in the public sector. They look as if they are expanding this to private sector supplier companies.

How long before they ban all contractors from operating through limited companies?

Will all contractors in the future be just Permies Without Benefits?

There are some some astonishing stories below:-

Secret HMRC IR35 Plan for Private Sector Contractors – Tougher Rules.

Umbrella Companies Forced on Public Sector Contractors.

Contractors Umbrella Company Future – Limited Companies Doomed.

Public Sector IR35 Test – Human Respurces Decide Contractor IR35 Status.

Scottish Contractors IR35 Independence Escape Route.

Public Sector HMRC IR35 Test – I Failed It – What Are My Options.

Simply Umbrella – Simply the Best

New umbrella product Simply Umbrella came into being to solve this problem.

It adheres to all the new tax rules. They created it after the Chancellor’s spring statement.

It’s just like other umbrella companies in that the contractor is an employee of Simply Umbrella but they get to keep far more of their money than through an ordinary umbrella company.

It could be a great solution for both public sector contractors IR35 problems and indeed any contractor.

To find out more just click on Simply Umbrella.

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2 COMMENTS

  1. This is a very inaccurate article. Firstly, not all public sector companies have decided to ‘knee jerk’ declare everyone inside ir35. Some have stiffened up their working practices to be more compliant.

    Secondly, it’s not compulsory to use the ESS tool, although it’s hard to actually get it to tell you you’re not compliant, so why not.

    Thirdly, there is currently no evidence to suggest that HMRC are going to apply the responsibility changes to the private sector, and even if they do, the reaction won’t be the same as the public sector as they a) have more flexibility in their working practices and b) are far less risk averse than the public sector.

    Everyone needs to calm down about all of this and try to educate the public sector organisations so they have the confidence to make the correct calls. The Ir35 rules have not changed, only the part of the chain responsible. If everyone comes out and hr and legal departments did their jobs properly then things would rectify and we could carry on as we are.

    • Not all deaprtments have decided to make everyone inside IR35 and you are correct that they don’t have to use the new tool. However, any public sector department manager who doesn’t at least ask contractors use the tool is taking a great risk – espeically as these guys are now the sloe arbiters if a contractor is inside or outside IR35. They are not known to take risks in the public sector.

      Contractors are also taking a great risk in taking the test. Their details will be passed to HMRC and if they fail the test their other contracts previously may be investigated.

      Also, as you say, there is no evidence that they intend to roll it out across the public sector. However, two of our readers, who work for private companies who do work for the Government have been told by their companies that they must drop their limited companeis and use umbrellas from now on.

      So, it is being partly rolled out in the private sector.

      As you say, there is no evidence that the Government will roll it out across the private sector – but if it brings in lots more tax in the public sector there must be a great temptation to roll it out across the rest of the private sector.

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