Public Sector Contractors Dilemma
Those contractors working in the private sector may not have public sector contractors dilemma yet. However, this could just a trial before 90% of all contractors will find themselves paying IR35 tax.
It is an easy income stream that the Government can take from contractors. Expect to hear more about it next year, the year after or the year after.
However, those in the public sector have to deal with it now.
Deciding Who is Inside IR35
It seems that the burden of deciding who is inside IR35, and who isn’t, is going to be decided by the intermediary. That means, in most cases, the recruitment agency.
It also means that recruitment agencies will also take the financial risk if it all goes wrong.
If they say a contractor is outside IR35 and he, or she, turns out to to be inside IR35, the recruitment company will have to stump up the penalties etc.
Ecen worse, for them, is that they may be caught up in many of those interminable IR35 investigations of HMRCs that may take years to decide.
Recruitment Companies Financial Risk
Does anyone think that recruitment companies are going to allow contractors to put them in this financial risk?
If they are on the Stock Market, they would have set aside funds to allow for that in their accounts.
Those contractors working in the public sector will have to sit an online IR35 test.
This IR35 test will have no basis, whatsoever, in law.
However, do you really think that public sector departments, and recruitment companies who place contractors in the public sector will override that and allow contractors to use their personal service companies to save on tax?
Contractors Forced to Pay IR35 Tax
It means that many, many contractors, who are legally outside IR35, will have to pay the IR35 tax.
If contractors currently declare themselves to be outside IR35 and are then found to be inside, they have to pay serious HMRC penalties.
However, if HMRC’s test shows contractors to be inside IR35 when legally they are outside, there is no fine on HMRC.
HMRC, and the Government, are taking money that is not rightfully theirs.
If something like this was done by an individual to a company it would be considered fraudulent. It would be the same the other way around.
HMRC estimate that 90% of contractors in the public sector will now be inside IR35 after taking the test.
But how do they know this if they haven’t even finished compiling the test?
Is it because it is they who are going to compile the test?
They are hardly a neutral body.
If this came up at a board meeting in the public sector, anyone who stood to gain from a decision would have to recuse themselves from the board meeting and the decision making process.
HMRC Fixing the Result
Are HMRC going to fix the result in their favour?
They did this last time when their ‘IR35 test’, created by them and IPSE, showed that virtually every contractors was caught by IR35.
This had no basis in law whatsoever.
If a public sector contractor fails the new test, it doesn’t mean that they are legally inside IR35.
It just means that they have failed the IR35 test that HMRC’s created.
Will Have to Pay IR35 Tax
However, in practice, it does mean that the contractor will have to pay IR35 tax. The public sector department and recruitment agency are not going to take any chances here.
Basically, this is intimidation and is grossly unfair.
Indeed, it is extracting money from contractors, many of whoe don’t owe them money, by a ruse, a device.
Threats and intimidation
It relies on threats of prosecution and intimidation to take money form contractors who don’t actually owe them money, as they are legally outside IR35.
One would love to hear what the courts say over this piece of chicanery.
I’m sure they will tested it.
What Public Sector Contractors Think
For now, it would be good to know what public sector contractors think about it and what they are planning to do?
Do you have options other than getting out of the public sector?
Comments from public sector contractors or anyone else below please.