Chancellor takes aim at private sector contractors

Chancellor takes aim at private sector contractors

15 October 2018

Media reports suggest that the Treasury is planning to overhaul IR35 tax rules with a costly policy for limited company contractors.

The move, which could be announced in this month’s Budget, would see public sector IR35 compliance rules extended to the private sector.

Just like public sector bodies, private firms would be responsible for ensuring that off-payroll personal service company contractors stick to the IR35 rules.

If a firm deems a contractor to be ‘inside-IR35’, the contractor would need to be placed onto the company’s payroll and would be liable to pay higher national insurance contributions.

The Treasury believes that many people are avoiding national insurance by claiming to be self-employed when they should be classed as full-employees.

Without the reforms, non-compliance with IR35 rules could cost HMRC £1.2bn a year by 2023, the Treasury says.

Contractor interest groups have argued agains the changes. IPSE Deputy Director of Policy Andy Chamberlain said:

“IR35 is an extraordinarily myopic policy; it is a short-sighted tax grab that will cause untold economic damage in the long-term.”

Policy critics also point out that the introduction of the changes in the public sector has caused significant problems, with severe delays and skills shortages on big projects.

Chamberlain continued: “Just two weeks ago, the Chancellor stood before the nation and declared the Conservatives ‘have business at its core’.

“Business groups have been unanimous in their view, they will not be ready to implement these complex changes by April 2019.

“If the Chancellor does push ahead with this, he will be flying in the face of the very businesses he pledged to support less than two weeks ago at the Conservative Party conference.”

If the policy was introduced for April 2019, businesses would have little time to prepare for the changes.

Since the changes were introduced in the public sector, there has been some intense criticism of HMRC’s IR35 status checking tool (CEST). This tool does not always achieve a result that is consistent with legal rulings in IR35 cases.

Many public sector clients also issued ‘blanket’ inside-IR35 judgements to all their workers. This could be even more prevalent for private sector clients, who may have fewer resources to devote to IR35 determinations.

Many other contractors have found it easier to move onto an umbrella scheme as a way of avoiding IR35.

Matt Watts, Business Development Manager, at Umbrella.co.uk said: “It seems like each time the chancellor has needed to make up a budget shortfall, he has dipped his hand into the self-employed worker’s purse.

“Now that the government is under serious pressure to meet NHS spending commitments, the Treasury has come knocking again.

“These IR35 changes will ultimately harm the economy and undermine one of its key strengths, the willingness and determination of its self-employed workforce.”

For more information on the rumoured IR35 changes or for advice on how to prepare for them, speak to a member of the Umbrella.co.uk team today. Call: 0800 121 6513.