Public Sector Contractors IR35 Blanket Ban
The public sector contractors IR35 Blanket Ban can be appealed to HMRC it seems.
Indeed, HMRC are expecting appeals.
It’s crucial, though, that contractors continue to operate via their personal service companies.
That would mean that they have to pay the IR35 tax rather than operate via an umbrella.
Once you’ve joined an umbrella you have more or less accepted your fate.
Can Contractors Appeal Public Sector Contractors IR35 Blanket Ban?
Tomas Pratt of Baltimore Consulting asked HMRC if contractors could appeal a blanket ban that forces contractors to pay IR35. Here is HMRC’s reply:-
“Ultimately if the worker disagrees with the decision of the Public Body, in the first instance they can challenge the decision of the Public Body directly – a print out from the Employment Status Tool Check may assist.
“If the challenge is unsuccessful the worker can contact HMRC online to submit a repayment claim, HMRC will then determine if they are due a repayment of Income Tax or NICs and repay as appropriate.
” Further guidance on tax overpayments and underpayments can be found at: https://www.gov.uk/tax-overpayments-and-underpayments”
Public Body’s Blanket Ban Appealed
If the public body has already made a blanket ban on contractors operating outside IR35 they are hardly likely to allow a contractor to change that on appeal.
That would, after all, break the blanket ban and create a precedent.
So, it looks as if the only way forward will be to continue to use their prersonal service company and pay the IR35 tax. Then they can claim it back from HMRC at the end of the year.
Most Contractors Passed IR35 Employment Status Test
The MD of one agency said that 60% of their contractors in the public sector passed the test.
So, if this is true across the public sector, then 60% of contractors are paying IR35 tax when the HMRC test shows they are outside IR35.
If they all appeal the blanket ban that could cause a lot of work in the public sector.
It could gum up HMRC if they all appeal to have their tax back.
Expenses Incurred by Contractors
Tomas also asked them about expenses incurred by contractors. HMRC replied as follows.
Expenses that are wholly, necessarily and exclusively incurred in the course of the engagement are usually reimbursed by an Employer to an employee.
If the worker is obliged to incur substantial costs that are not reimbursed by the Client – this would indicate a significant Financial Risk incurred by the worker which is another Employment Status Indicator.
Where the worker incurs significant financial risk by undertaking the work, they are likely to fall outside the IR35 legislation.
IT Contractor Comment
That puts contractors in a dilemma.
If they want to get a tax refund they have to continue operating via their personal service companies.
This will be more expensive for them than the umbrella company route. That’s unless they win their appeal to HMRC and get back the extra tax and NI.
Legal Challenge to IR35 Blanket Ban
Of course, if HMRC turn down their appeal they would either have to give up or take the legal route.
After all the IR35 laws haven’t changed at all.
If the HMRC IR35 Self Employment Status test says that you are outside IR35 you would be pretty likely to win any legal case. However, there is the time that will take and the cost.
Of course, if they have IR35 insurance either personally or through contractors’ group IPSE they are fine.
However, those who sell IR35 insurance would not have been expecting the number of IR35 appeals that this IR35 change may throw up.
If 60% of all public sector contractors want to appeal the public sector contractors IR35 Blanket Ban, that could cause a huge burden on IR35 insurance sellers.
Anyone who wants to know more from Baltimore Consulting can contact them on 0117 929 3812 or email: [email protected]
If you do need an umbrella company you could try one of the following:-
If you want to cut your Accountancy costs by using apps try Aardvark Accounting.
For Mortgages specially designed for contractors try Specialist Contractor Mortgages.