We published this in March about a secret HMRC IR35 plan and we think it is even more relevant now. There have been budget leaks to the Press that the Chnacllor is going to roll this out to the private setcor too.
Secret HMRC IR35 Plan
According to the MD of a top agency, writing on LinkedIn, there is a secret HMRC IR35 plan that will roll out the stricter IR35 rules to contractors in the private sector.
It seems that the agency have a contractor working in HMRC who is working on the project to roll out the recent public sector IR35 rules across the private sector.
They are planning to implement it in 12 months time.
To quote he Agency MD on LinkedIn “IR35 public sector regs –
Despite some contractors hiding their heads in the sand, this was always on the cards.
New Private Sector IR35 Rules
It’s more difficult for the Government to roll out these new rules in the private sector.
That’s because they will have to legislate for any changes to IR35 in that sector.
In the public sector, they can make any rules they want.
They are telling their departments that the department will decide a contractor’s IR35 status in future.
Previously a contractor decided his, or her, own IR35 status.
If the department rule that a contractors is inside IR35 then the agency have to deduct income tax and national insurance contributions from a contractor’s income.
Contractors Joining Umbrella Companies
In practice, the contractors are dumping their personal service companies and joining umbrella companies.
Indeed there has been an umbrella company feeding frenzy over the past few weeks.
So, now it seems that HMRC are already working on a secret HMRC IR35 plan to roll out the stricter IR35 rules across the private sector too.
IR35 Rules in Next Budget
It’s likely that this will be announced in the next budget and rolled out the following April.
We have to point out that this news only comes from one person and is not corroborated.
However, it is from the MD of an agency who has a contractor working on the project at HMRC.
We know the recruiter’s name and his agency but have decided not to publish the name of either.
That’s despite the MD already putting it into the public domain by putting it on LinkedIn where I saw it.
Announced by Prime Minister or Chancellor
HMRC would not be best pleased with any contractor they found giving out such information. Such info would only, normally, be announced by the Prime Minister or Chancellor at a Budget or Spring or Autumn Statement.
If this is true, that there is a secret HMRC IR35 plan, and we suspect that it is, as it is the obvious next step for the Government, then this is dynamite.
It will mean that their client companies will decide the IR35 status of private sector contractors.
Umbrella Company Bonanza
This is likely to mean that in a few years time the great majority of contractors will be in umbrella companies.
After all, HMRC said that they expected that 90% of contractors would fail the new IR35 test.
So, there is likely to be two types of contractors in a year’s time.
There will be 10% of what HMRC would call genuine contractors who would still use their personal service companies.
Then there would be the 90% of what contractor group IPSE used to refer as ‘bums on seats’ contractors.
Private Sector Umbrella Company Feeding Frenzy
It will also mean that there will be an even bigger umbrella company feeding frenzy in a year’s time as private sector contractors scramble to find a good umbrella company.
Is there any good news?
Yes there is.
According to the MD of the agency, a whole bunch of their contractors passed the IR35 test today at a government department.
He said on LinkedIn “Tht’s positive signs that the new online tool is a fair reflection of the contractors engagement”.
He reckoned that this showed that the test is fair.
However, HMRC are still tweaking it.
We will see how this pans out – but it has the ring of truth.
Find Out More about HMRC’s IR35 Employment Status Test and see if you would pass it.
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