Chancellor Strengthens IR35
The Chancellor strengthens IR35 in his latest budget.
The Government has had a knee jerk reaction to recent criticisms after many of its own managers in its own departments, including HMRC, were funnelling money through Limited Companies.
It has now decided that PAYE and NIC will be deducted at source for those ‘integral to the organisation‘.
This is obviously aimed at its own senior employees.
However, IR35 was originally set up to make those ‘˜disguised employees‘ who left their permanent jobs on a Friday and started as contractors at the same firm on a Monday, pay their full whack of tax.
However, it caught many genuine contractors and freelancers in its net.
And when the government found that they were catching fish they didn‘t intend to catch and gaining a potful of tax from people they had scared into umbrella companies, they liked the look of that.
Who‘s Caught by IR35
So, who is integral to an organisation?
Obviously the CEO, Finance Director, Marketing Director, CIO etc. are integral.
Although they managed to catch people in their own departments with this they will also be catching senior managers in the private sector many of whom have one-year and three-year rolling contracts right at the very top level.
Contractor and Senior Manager
It could mean that it will be impossible to be both a contractor and a senior manager in the future.
There will be, I was going to say a glass ceiling for contractors in all organisations but it is more of a concrete ceiling.
It will be highly obvious where freelancing stops on the organisational chart.
But how far down are people integral to an organisation?
Are Project Managers and Project Leaders integral?
Are Architects integral?
Are Business Analysts integral?
Are people with sole knowledge of an area of the system integral?
HMRC IR35 Inspections
One knows what HMRC‘s IR35 Inspectors would see as integral.
Unless this is further defined we could see a whole load of cases going through the courts to define who is integral to an organisation.
It looks though now as if it will be impossible to be both a freelancer and aspire to have a career right to the top levels.
Freelancing at Lower levels
Freelancing looks now to be only for those at the lower levels.
Will it not be possible to be a Freelance IT Manager who steps in on a short term basis while a company looks for a permanent one?
One hopes that it is applied to just those at Board level but one expects HMRC will see it differently.
Also, will this be a trial run to deduct PAYE and NIC at source for other contractors?
That‘s the danger.
Luckily it doesn’t come into force till next year so there is still a chance to get it changed.
The Chancellor strengthens IR35 and some more are caught in its deadly net.