Private Sector Contractor IR35 Changes
Private Sector Contractor IR35 Changes are looming and it is crucial that contractors prepare now.
Prime Minister Theresa May and Chancellor Philip Hammond have both said that it is very unfair that a self employed person who earns £100,000 a year pays less tax and National Insurance than a permanent employee earning £100,000 a year.
We all know that this is like comparing apples and pears. They are two different things.
For instance, freelancers don’t get pensions, national insurance paid for them, holiday pay, sick pay, maternity leave, paternity leave etc
Permanent Employees Monthly Income
Permanent employees also have assured monthly income and there is a much lower risk factor with heir employment.
However, it doesn’t look as if this matters to the Prime Minister and Chancellor.
They said that this is an anomaly and they intend to fix it.
One would hazard an educated guess that is the big Consultancies, which they hire at the drop of a hat, who have advised them to do this.
They see contractors as rivals who prevent then cornering the market.
The Government have already ‘fixed’ it in the public sector.
Public Sector IR35 Changes
In the public sector they changed the IR35 rules starting in April 2017.
It’s much easier to change IR35 rules in the public sector as they are the employers and they can have any rule they like.
They don’t have to make any changes to the laws.
It is more difficult in the private sector as the Government would have to legislate if they want to change IR35.
However, that is what they have decided to do.
Looming Private Sector Contractor IR35 Changes
Even after it happened in the public sector, many contractors said that the Government would not dare implement the IR35 changes in the private sector.
My answer to that was that if the Government believes that this is an anomaly and unfair, why would they only think it was unfair in the public sector?
Why would they implement it there and not in the private sector too?
Why would they let this ‘unfair anomaly’ persist in the private sector when they had eliminated it in the public sector?
It would only make sense if they did it across the board.
So, they’ve decided to implement the IR35 changes in the private sector too – starting in April 2020.
Government Budget Leaks on IR35 Changes
There were leaks to the press prior to the last budget which said that the Government were going to implement this in April 2018.
However, contractors raised a petition which got quickly to 10,000 signatures. This was the figure that meant the Government had to be informed of it.
So, the Government said that they would consult about this first.
They have now done so and have announced the date when it will be implemented.
Tax Loss to the Treasury
However, HMRC said that they can’t wait for the results of the consultation. They had to fix the tax loss to the Treasury from private sector contractors.
So, they announced it in the Budget in November 2018 to be implemented in April 2020.
So, what can contractors do about it now?
It may seem a long way off but to be forewarned is to be forearmed.
It is best to plot your course ahead now before the Private Sector Contractor IR35 Changes in April 2020.
HMRC IR35 Test
HMRC have devised a new online IR35 test for Government departments to use to test if contractors are inside IR35 or outside it.
Of course, they are sure to have skewed it in their own favour.
One agency, who have lots have contractors with Government departments, said that 40% of their limited company contractors failed the test and had to dump their limited companies.
Most Contractors Would Fail IR35 Test
The Government’s own figures from people taking the test show that only 54% pass the test.
So, if you are a limited company contractor working in the private sector, there is a 46% chance of you failing the test or having an indeterminable result (15%) which comes to much the same. So, you will have to shut down your limited company in April next year.
However, that’s the 46% glass empty argument.
There’s also the 54% glass full argument.
There is a 54% chance of you passing this test currently.
You have from now till April 2020 to increase that percentage.
Contractors Can Change Contract and Working Practices
You can change your contract and working practices to make you more likely to pass the test.
You might not be able to change the contract you have with an agency before April 2020.
So that’s why you need to take action now.
Whatever contract you have in April 2020 must have suitable changes incorporated to make you more likely to pass the test.
So, the best way to improve your chances is to find out where you are now.
HMRC IR35 Employment Status Test
Click on HMRC IR35 Employment Status Test and do the test.
If you pass, that’s well and good.
If you fail, then start plotting now as to how you can make the changes necessary to change that.
It is best to prepare now for the Private Sector Contractor IR35 Changes.
What most freelancers in the public sector did, when they failed the IR35 test, was to join an umbrella company rather than just pay the IR35 tax.
The other thing limited company contractors can do is to find an umbrella company beforehand that affords them a decent return – as a fall back.
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If you do need an umbrella company, or do want to find out how much of your income you could keep if forced into one, you could try one of the following:-
Or would you prefer to get expert advice about which umbrella company is right for your specific needs, now or in April 2020? If so, fill in the form below and they will be in touch.
For all necessary business insurance, including IR35, try Business Insurance for Contractors
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