Why Government launched IR35 attack on IT Contractors

IR35 Attack
IR35 Attack

IR35 Attack on Contractors

Recent figures received by Bloomsbury Publishing via the Freedom of Information Act show that the Government and HMRC have re-launched their IR35 attack on contractors.

It was found, moreover, that they had upped their number of investigations from 23 to 59 last year.

The amount of money the Government got from IR35 investigations last year rose from £219,000 to £1.25m.

However, this is still a bit of a pittance relatively.

The amount of money they take from IR35 is still not very much.

However, they don‘t mind that.

Limited Company Contractors

The big gain for the taxman is that it will scare contractors out of Limited Companies and into Umbrella Companies.

The Government, therefore, receives around 10 grand a year from each Umbrella Company contractor on average in extra tax and NICs than from Limited Company contractors.

As there are 200,000 Umbrella Company contractors that is an extra £2bn in tax that they didn‘t use to get prior to IR35.

No Abolition of IR35

This is why they didn‘t abolish IR35.

The panel they set up said that there would be a danger that contractors would get out of Umbrella Companies. They go back into Umbrella Companies again if IR35 was abolished.

They saw that as a bad thing and the Government agreed with them.

Contractors Group IPSE

However, that is not all, that is not all.

A survey by contractors group IPSE showed that there were 1.6m freelancers in the UK.

Many of them are operating through Limited Companies.

That means, therefore, that the Government are losing 10 grand on each of them.

Umbrella Companies

Firstly the Government were reactive and kept IR35 to stop the 200,000 contractors in Umbrella Companies going back into Limited Companies.

However, looking at it made them realise that if they could get more contractors out of Limited Companies and into Umbrella Companies that the tax the Government got would rise greatly.

If they could double the number of contractors in Umbrella Companies that would be an extra £2bn. That’s very handy when your austerity cuts are running out of steam.

No IR35 Attack Law Change

They don‘t even have to change the IR35 law.

They are using terror tactics to frighten contractors out of Limited Companies and into Umbrella Companies.

They are using the IR35 Business Entity Tests devised for them by the PCG as a means of frightening contractors out of Limiteds and into brollies.

Although the PCG devised it for them the scoring systems was created just by HMRC.

All Caught

It shows virtually all IT Contractors as being either at High Risk or Medium Risk of being caught by IR35.

Now, what the Government and HMRC are doing is they are sending out thousands of letters to contractors. They are asking them to prove that they at Low Risk of being caught by IR35.

They asked them to do the online test.

Hey Pronto!

The contractor does the test and it shows him or her at High or Medium risk.

HMRC‘s letter tells them that they must prove themselves at low risk within a month or the next step is a visit from the taxman.

Report to Taxman

What is the contractor to do?

Declare that he or she is at High or Medium risk of being inside IR35 to the taxman?

Or should he or she take the next best route of joining an Umbrella Company?

Even contractors who haven‘t received the letters will now be nervous about getting one and becoming the target of an IR35 investigation.

Many of them will now opt for the Umbrella Company route.

That will delight the taxman and the Government who will pocket an extra 10 grand each from them without really trying.

Government’s End Game

So, it looks now as if the Government doesn‘t want contractors in Limited Companies taking advantage of all sorts of tax breaks.

They aren‘t even that bothered about them registering for IR35.

As long as they join Umbrella Companies those Umbrella Companies will send the taxman and the Government heaps of lovely tax and NICs every week that they‘ve removed from contractors.

It‘s easy isn‘t it?

This looks like the Government‘s End Game and why they hired an extra 36 IR35 Compliance Officers when they are slashing Government staff elsewhere.

This IR35 attack will be hard to repulse.