Government Extends IR35
Don‘t say it wasn‘t coming, i.e. the news that the Government extends IR35.
The Government said in the Budget that they would strengthen IR35. They said they would add extra compliance officers. That’s at a time when they are slashing public sector jobs elsewhere.
They announced on Saturday the details of the strengthening of IR35.
It was set up initially so that ‘disguised employees‘, i.e. those leaving permanent employment at one company on a Friday and starting as a contractor on the Monday at the same company.
Extra Tax Raised
However, more contractors were caught in the IR35 net than intended.
The Government saw the extra tax income that was being brought in from those ‘˜caught‘ contractors and liked it.
Although very little is brought in by the actual IR35 tax, around 200,000 contractors who were caught by IR35 or who were just afraid they might be, joined Umbrella Companies.
These Umbrella Companies were set up to allow contractors to claim some legitimate expenses that permanent staff couldn‘t.
However, it is reckoned that they pay an extra £10,000 a year on extra tax and NICs than a Limited Company contractor getting the same rate.
This nets the Government an extra £2bn a year.
A recent review for the government said that abolishing IR35 would have the effect of contractors coming out of umbrella companies. They would set up limited companies.
The Government agreed that this would be a bad thing. So they were happy to take on the recommendation that IR35 should be kept.
Now it looks as if they have gone for the jackpot and extended it further.
It‘s an easy source of income.
Most Caught by IR35
Most contractors and freelancers will now be caught by it.
It says that those freelancers who operate as sole traders and don‘t employ anyone, who sell their own services rather than products or the services of someone else, and who operate mainly from their client‘s site will now be caught by IR35.
Currently the Government takes £2bn in extra tax from 200,000 contractors in Umbrella Companie. That’s three time its income from the notorious Granny Tax.
There are a further one million sole trader contractors and freelancers in the UK.
It is estimated that around 600,000 of these will now be caught by IR35. That’s because they are sole traders selling their services mainly at client sites.
This will bring in an extra £6bn in extra taxes and NICs to the government. That’s the equivalent of 9 Granny taxes or the equivalent of 2p in the basic rate of income tax.
This will cut the amount of money that the government have to borrow in one fell swoop.
Government Extends IR35 Masterstroke
They would see it as a masterstroke. Also, as it affects only a small amount of the population who are not well organised or represented it doesn‘t give them anything like the bad publicity that they would get from other measures that they might take.
It was always on the cards that since the government decided to keep IR35 that they would seek to chase more contractors into Umbrella Companies.
It‘s easy money for them and virtually pain free in terms of adverse publicity.
Huge Blow to Contractors
However, it is yet another blow to contractors trying to run small businesses.
It looks as if the government has decided that all IT Contractors should now be inside IR35 and chased into Umbrella Companies.
I‘m afraid that we could all see that coming, i.e the news that the Government extends IR35.
I‘m only surprised that it has taken them so long.
It‘s like shooting fish in a barrel.