Private Sector Contractors IR35 Tax Reforms
It is now certain now that private sector contractors IR35 tax reforms are going to be implemented in April 2020.
The Government had a consultation period to see the best way to tackle ‘non-compliance by off-payroll workers in the private sector’.
Now hey will implement their Private Sector Contractors IR35 Tax Reforms.
Public Sector IR35 Reforms
Public Sector Contractors were hit in April 2017 with the reforms.
The main thrust of the reforms was to take away the decision about a contractor’s IR35 status from the contractor to the hirer or fee payer.
The fee payer, normally the agency, would deduct tax and national insurance before paying the contractor. That’s if the client decided that the contractor was inside IR35.
IR35 Test from HMRC
HMRC came up with a new IR35 test to help the hirer decide the contractor’s status.
Although this has no basis in law, and is only HMRC’s opinion of who is inside IR35, it has been taken as gospel by hirers.
That’s because there is a financially penalty on hirers who get a contractor’s IR35 status wrong.
So, many Government departments took no chances. They erred on the side of the cautious.
Indeed some major departments like the MoD, NHS and HMRC declared all their contract positions to be inside IR35. They banned the use of limited company contractors.
There was a feeding frenzy for umbrella companies with contractors having to dump their limited companies.
Many pundits say it was a failure in thee public sector with contractors refusing to work there there any more. Projects ran late.
However, HMRC say it was a big success.
More Contractors Now Paying Tax and National Insurance
They say that 58,000 more contractors are now paying what HMRC and the Government see as their fair share of tax and national insurance.
They say that this is bring in an extra £410m a year.
That’s more than £7,000 for each contractor extra.
Now they will go for the jackpot, i.e. private sector contractors. That would bring in a whole heap more. That’s if almost half of contractors in the land had to dump their limited companies.
There are now 4.8m self employed in the UK.
What a bonanza for the Government when half of the limited company ones were now classified by their hirer as inside IR35, using HMRC’s test.
These Private Sector Contractors IR35 Tax Reforms could bring in big bucks.
That would help cure the deficit.
Self Employed Paying Too Little in Tax says Prime Minister
Both Theresa May and Chancellor Hammond said that it was unfair that a self employed person earning £100,000 a year paid a lot less tax and national insurance than an employee earning £100,000 a year.
Theresa May said that this was an unfair anomaly.
Now, this idea was almost certainly implanted in them by the big consultancy companies that they use.
Those big consultancies see contractors as rivals and would like to see them abolished altogether. That’s so that they could cash in big time.
We all know that this is not comparing like with like.
However, this is what the Prime Minister and Chancellor believe and it is on this that they want to act. They want to remove this ‘unfair anomaly’.
Believe Contractors To Be Tax Avoiders
Despite all the nice things they say about the self employed they see them basically as a bunch of tax avoiders.
Now they have announced the end of the consultation process which will see many more contractors paying much more tax.
They will introduce it to private sector contractors in April 2020.
All contractors have got really is a stay of execution till then.
Lessons From The Public Sector Over IR35 Reform
The private sector was really just the pilot project for the private sector.
The stated aim of the consultation was to see how they can best tackle the non-compliance of what they call off payroll workers in the private sector.
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