Public Sector Contractors IR35 Tax Status
With the calling into question of Public Sector Contractors IR35 Status, it looks as if there will be a mass stampede out the door by April.
Therefore, the chances are that the public sector will lose a lot of contractors very shortly.
The Government said in its Spring Statement that public sector contractors can no longer decide their own IR35 status.
It will be their client who will decide if individual contractors are inside IR35 or outside it.
HMRC’s Online IR35 Test Creation
So, HMRC are developing an online IR35 test to help them decide this.
They reckon that it will show 90% of contractors to be inside IR35.
This is ridiculous as only around 10% of contractors are currently inside it.
They are obviously going to manipulate the test to make sure that as many contractors as possible are inside IR35.
They did that with the last IR35 online test they created.
Courts Decide IR35 Status
Of course, online IR35 tests created by HMRC are not legal. It is the courts that decide contractors’ IR35 statuses and not tests created by HMRC.
What is going to happen is that they will force many contractors who are legally outside IR35 to pay a tax that they shouldn’t be paying.
This is grossly unfair.
It would be good to see this tested in the courts.
This is almost like a Mafia Protection Racket – “gives us your money or we might hurt you”.
It is bascially daylight robbery they are perpetrating on contractors and freelancers.
Taking the Contractor’s Money
It will be up to whoever pays the contractor to take the money out of a contractor’s income and send it to HMRC if the contractor is shown to be inside IR35.
If they make a wrong decision on the contractor’s behalf, then there are financial penalties.
Already one public sector employer, Transport for London, has decided that they don’t want to take the chance. They are no longer going to deal with contractors who operate through personalservice companies.
IR35 Options for Contractors
Contractors who are already there have three options:-
- Pay PAYE Tax
- Join an Umbrella Company
- Leave
The obvious route is to go via an umbrella company. However, that will be a massive cut in income for contractors. The normal rate of return for contractors using umbrella companies is not that much over 60%.
With their personal service companies they would normally expect to retain 70% to 75%.
So, the choice for them is, basically, take a massive pay cut or leave.
Hard Line Public Sector Departments
It is likely that some other public sector departments will take an equally hard line.
The Government’s idea is to get much more tax money from contractors.
Whereas contractors might gamble that they are outside IR35, agencies and government departments will not.
Contractors are more likely to be struck by lightening than have an IR35 investigation.
However, there is very little in it for government departments and recruitment companies who pay contractors, to take any risks.
So, most of them won’t.
They will insist that contractors join umbrella companies.
It looks as if many of Transport for London’s contractors are simply going to quit and look for contracting work elsewhere.
Perhaps there is another solution which will get them round public sector contractors IR35 problems.
Simply Umbrella – Simply the Best
New umbrella product Simply Umbrella was created to solve this problem.
It adheres to all the new tax rules. They created it after the Chancellor’s spring statement.
It’s just like other umbrella companies in that the contractor is an employee of Simply Umbrella but they get to keep far more of their money than through an ordinary umbrella company.
It could be a great solution for both public sector contractors IR35 problems and indeed any contractor.
To find out more just click on Simply Umbrella.
