HMRC Contractor IR35 Plan – 10 Times as Many Will Pay IR35 in Future


HMRC Contractor IR35 Plan

So, what is the HMRC Contractor IR35 plan for the future? What is the end game as far as they are concerned? Once the IR35 reforms in the private sector are put in place will that be it? Will the Government and HMRC sit back and say “That’s it. We are happy now?” Can those contractors outside IR35 then relax and believe themselves to be safe from HMRC? Not a bit of it. HMRC say that only 10% of contractors who should pay employee tax under IR35 are actually paying it.

Freelancers Questions on HMRC Contractor IR35 Plan

  • How Much is IR35 Non Compliance costing the country
  • Will HMRC and the Government leave contractors alone after April 2020?
  • How Many Contractors will be non-compliant with IR35 after April 2020
  • Who are the 10% of Contractors that HMRC believe to be IR35 compliant?

How Much is IR35 Non Compliance Costing the Country

According to HMRC IR35 non compliance by contractors is costing the country £1.2bn a year.

HMRC say that an extra 58,000 contractors in the public sector are now paying tax under IR35. They say they are getting an extra £410 million of tax and national insurance from those pubic sector contractors.

They expect to get triple that from private sector contractors. The roll out in the public sector took place in April 2017. The roll out in the private sector will take place in April 2020.

Will HMRC And the Government leave Contractors Alone After April 2020

However, even after the rollout of the IR35 changes to the private sector in April 2020 it is unlikely that HMRC and the Government are finished with contractors.

According to figures showing how many contractors are inside IR35 using HMRC’s Check Employment Status Test (CEST):-

  • 54% are outside IR35
  • 31% are inside IR35
  • 15% are indeterminable

So, almost half are inside IR35 or indeterminable. However, HMRC say that only 10% of contractors who should pay employee tax under IR35 are currently paying it.

This was repeated by Treasury Minister Jesse Norman. According to him, only 10% of contractors are compliant with IR35. He said this in an answer in parliament to Scottish Nationalist MP Martyn Day.

One would guess that they would not be prepared for this to continue.

How Many Contractors Will Be Non-Compliant With IR35 After April 2020

If currently only 10% of contractors who should pay IR35 tax are paying it and this will almost double after the IR35 reforms next April then that would mean that short of 20% of contractors would then be paying the IR35 tax that should be paying it. So, according to HMRC’s logic, 80% of contractors who should pay the IR35 tax will not be doing so.

So, do you think that they will just let it pass? That’s highly unlikely. It would be more than likely that this is just the latest assault on contractors.

Once this is in place there are likely to be fresh assaults. After all, only 10% of those who are paying employee tax under IR35 are currently doing so. Even after the IR35 changes it will only be something like 19%. There are still another 81% of contractors who should pay the IR35 tax according to HMRC.

Who Are the 10% of Contractors that HMRC Believe to Be IR35 Compliant

One wonders who these 10% are that HMRC believe to be compliant. Are they people whom HMRC believe to be genuinely outside IR35? Or are they:-

  1. Contractors who they have already caught for IR35
  2. Contractors who have declared themselves inside IR35 to avoid the hassle
  3. Those who have failed the CEST test in the public sector or are under blanket bans in the public sector
  4. Those contractors who operate through umbrella companies and who already pay employee tax and national insurance

The majority of those that HMRC and the Treasury believe to be compliant are likely to fall into one or more of the above categories. This would mean that HMRC and the Treasury believe that virtually all contractors are inside IR35.

I’ll leave you to think if they will continue to allow those 80% of contractors who they believe will remain non-compliant after the current changes are implemented to stay that way.

What do you think?

See 90% of Contractors are Tax Evaders. Jesse Norman in New Contractor IR35 Shock

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