Following December’s election result we wait eagerly for news on an IR35 review for the private sector.
New IR35 rules for medium to large private organisations are scheduled for April 2020.
However, Chancellor Sajid Javid commented, on Radio 4’s Moneybox, that an IR35 review would take place before April. The promise of a review was in response to businesses and contractors demanding a rethink of the controversial tax system. The Budget is now set for 11th of March and the Chancellor said he will focus on the environment and public spending.
As you know the only certainties in this world are death and taxes. Any spending will eventually need to be paid for. Therefore, even if IR35 plans are re-evaluated the roll out will happen. If you are a contract worker and unfamiliar with IR35 read on to find out the impact it will have.
What is IR35?
IR35 is an ‘intermediary tax’ rule that applies to contractors who provide a professional
service to the client (organisation) as a Partnership or Limited Company.
Why was IR35 introduced?
Traditional 9 to 5pm jobs for life no longer exist. Everyone experienced changes in the workplace in the 21st century. Organisations introduced flexible working practices and increased the number of contract workers. The seismic shift improved the work-life balance for workers and reduced project costs for businesses. HMRC believed organisations used long term contractors to effectively ‘disguise workers’ and that it cost the Treasury millions every year. HMRC’s solution was IR35.
Why was IR35 unpopular with the public sector?
From April 2017, the public sector struggled with the implementation of IR35. The public sector roll out was problematic from the start. The burden was on the contractor to define their working status. However, it was overly complicated to define. The difficulty associated with defining status is down to the variety of contractor roles, diversity of projects, and length of time spent on projects.
HMRC introduced the CEST online tool to define employment status. The tool was difficult to use with multiple factors used to define the status of a contractor under IR35. Consequently, mistakes were made resulting in penalties and unexpected tax bills.
IR35 has been blamed for rising project costs and falling productivity as contractors left the public sector and couldn’t be easily replaced. The question is will it have the same negative impact on the private sector next.
Is IR35 the end of private contractors?
Now medium to large private organisations faced with IR35 implementation are nervous about the cost to their organisations, ability to attract talent and key skills. Contractors are anxious they will pay more in tax or simply don’t know if they fall under the IR35 criteria. Changes to IR35 in 2020 means recruiters and private sector employers will rethink the benefit of using contractors over employees.
How to define contractor status
To define contractor status read IR35 are you inside or out?
Get in touch with our tax experts if you are a business owner or contractor in the public or private sector for specialist IR35 advice.
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