We now know what is in the newest IR35 reforms.
APSCO, the main group that represents recruitment companies in the UK, fears that IR35 Reforms by HMRC and the Government, in a new proposal, will destroy the contracting profession.
HMRC have just rushed out their consultation document as regards IR35 reforms just before the summer. It was not expected till later. So, interested parties have just 12 weeks to respond to it.
HMRC Plans Unfair
APSCo believe the plans to be unfair and unworkable.
Currently, the legislation leaves it to the individual contractor to judge his, or her, IR35 status.
They decide, therefore, if they should be operating through a Personal Service Company or an Umbrella Company or to pay the IR35 tax.
So. if they get it wrong, it is they who must suffer the consequences of an IR35 investigation. They’ll maybe have to pay tens of thousands of back tax and fines.
Recruitment Company Responsible
The proposed reforms will mean that it is the recruitment company who has responsibility and liability for determining if a contractor is inside IR35 or not.
If they get it wrong, therefore, they will be liable for unpaid tax and NICs if HMRC don’t agree with them.
This is to take effect from April 2017.
Public Sector Contractors
This is currently just going to apply to public sector contractors.
However, this could just be the pilot project.
They may be planning to roll it out for all contractors in the future.
That’s the danger if they start getting heaps more tax money in from poor old public sector contractors.
Recruitment Companies Visibility
This new liability is despite the fact that recruitment companies have very little visibility into how a contractor operates at the company where the agency places the contractor..
They can set up a non-IR35 contract.
However, courts have said that the actual working practices override anything that is in the contract.
If they are not told the truth about the exact working practices of a contractor and HMRC decides that he, or she, is caught, despite what the contractor says then the agency could be caught up in a number of lengthy IR35 disputes with HMRC which could go one for years.
They could end up costing them tens of thousands of pound in back tax for each contractor plus legal fees.
APSO reckon that recruitment firms will not be able to take on this legal liability from the IR35 reforms.
They say “We believe that recruitment firms will not be able to take on this kind of unknown liability and so will have to assume that the contractor is outside IR35 which will result in large numbers of contractors in ‘false employment’. It will also mean that contractors lose control of their business tax affairs.
“Last but not least, the public sector is likely to lose access to the skills they need as contractors will be too expensive – and will choose to work in the private sector.”
APSCo May be Mistaken
I’m not sure if APSCo are right here.
Will it not be safer for agencies to assume that all contractors are inside IR35?
That way there is no chance of any comeback on the agency.
This could foce many contractors who are outside IR35 to have to pay the tax or not get a contract through those agencies.
Why would recruitment companies take the risk?
They wouldn’t care if contractors had to pay more tax as long as they got their cut of the fee.
Future of Contracting Profession Not Safe
It seems that HMRC are not even consulting as to whether this is fair or appropriate.
Said APSCo, “If these proposals are a dry run for the private sector then we fear for the whole future of the flexible workforce.”
Everything could change for UK contractors after the IR35 reforms are implemented next April.