Controlling Persons IR35 Legislation
It looks like we are set for controlling persons IR35 legislation.
The Government has brought in rules in the public sector that state that people who are ‘Controlling Persons‘ should be permanent employees.
This was brought in after the media frenzy about senior people in the Government‘s own departments using Personal Service Companies to channel their pay through.
Incredibly, whilst sending out their staff to hunt down IT Contractors for IR35, two very senior managers at HMRC were channelling their pay through Personal Service Companies.
Controlling Persons Definition
‘Controlling Persons‘ were defined as those who had ‘significant control‘ of budgets and people.
Annoyingly they didn‘t define ‘significant‘ and as we all know HMRC will interpret that very narrowly.
The Chancellor indicated that he would like to bring this into the private sector too, which would mean legislation.
However, he said he has decided against it.
That sounds good news for those contractors who would like to have a career as well as be a contractor.
IR35 Sufficient to Deal With It
However, the Chancellor said that he felt that the IR35 laws would be sufficient to deal with it. The Government brought those in during 1999
It looks as if the courts may decide it then.
The Chancellor must think that the recent IR35 Business Entity Tests that HMRC constructed, with PCG help, will be sufficient to catch ‘Controlling Persons‘.
The other bad news is that the Chancellor said that ‘the government is strengthening the existing intermediaries legislation. It’s to put beyond doubt that it applies to office holders for tax purposes.’
IR35 Business Entity Tests
The Business Entity Tests are controversial. They they were created for HMRC by the Professional Contractors Group and others. However, HMRC solely devised the marks system. So, it is only their opinion on how IR35 law applies.
There is no legal basis for these Business Entity Tests and they are not definitive.
A poll on this website of our readers showed that 80% of IT Contractors sitting the test would be at High or Medium Risk of being inside IR35. So they would be in danger of an investigation.
That‘s astonishing considering that IR35 was brought in to catch ‘disguised employees‘. They are people who quit their job at a company on a Friday to start at the same company as a contractor on a Monday.
How far it has come since then!
Personal Service Companies and Umbrella Companies
It looks as if the endgame for the Government is to scare as many contractors as they can out of Personal Service companies and into Umbrella Companies.
That‘s good news for Umbrella Companies and the Government in terms of tax take. However, it will not please contractors so much.
This is a long game but both Labour and Conservative Governments have given strong indications that they see how they want this to end.
That’s why they are bringing in he controlling persons IR35 legislation.