Public Sector Limited Company Contractors
A lot of public sector limited company contractors are now inside IR35.
According to the MD of a top recruitment agency, 40% of the contractors that work for the agency in the public sector are now deemed inside IR35.
He reckons that’s a good result as there were predictions of 90% being inside IR35.
However, that is 40% of public sector limited company contractors who will now be paying the IR35 tax that were not before.
Either that or they chose to operate through an umbrella company.
Contractors IR35 Statuses
It seems that it has been chaotic with a lot of last minute decisions as to contractors’ IR35 statuses.
They are comparing it to the Americans’ chaotic exit from Vietnam.
Of course, it varies greatly depending on the Government department with HMRC’s figures much higher for those caught by IR35.
So, this means that 2 in 5 public sector contractors are suffering an enormous drop in their income.
This could be as much as 20% of their income.
Looking for Umbrella Companies
Most of those contractors have been desperately looking around for umbrella companies rather than pay the IR35 tax.
Financially that is marginally better.
However the Government eroded much of that difference when they made it that umbrella company contractors could no longer claim travel and subsistence against tax.
The Government’s diktat means that probably a a majority of contractors in the public sector now use umbrella companies when you add those that use them already.
What Now for the Government and IR35
So, now the big question is “What next”?
This IR35 changes in the public sector by the Government will earn them £185m according to the Chancellor.
However, that’s only a small amount as regards taxes.
Is this just a precursor for the private sector?
Is it true that HMRC are already making plans to roll this out in the private sector next April?
Indeed it is.
They have announced that they will be doing so and they want a period of consultation first.
Contractors Group IPSE, and others, believe that they can talk the Government out of this.
A more likely scenario is that it gets implemented in April 2019 after being announced in the Budget of 2018 in November.
There’s a possibility that it may be April 2020.
Recent information bears the numbers out.
From more than half a million people who took the Check Employment Status for Tax online test, 31% were inside IR35, 54% were outside IR35 and 15% not determinable.
One would expect that employers would not take a risk on the 15% so it would be 54% outside IR35 and 46% inside IR35 or not proven outside IR35.
If you do need an umbrella company, compliant with the new rules, you could try one of the following:-
If you want to cut your Accountancy costs by using apps try Aardvark Accounting.
For Mortgages specially designed for contractors try Specialist Contractor Mortgages.