IR35 experts tell contractors to get ready for changes
The details published on the launch of the IR35 review last week suggest that April’s reform will be implemented, a number of contracting experts have said.
While the news that a review would be held to focus on the incoming changes was initially welcomed in December, the opening of the review itself has been heavily criticised. This is because the IR35 review document makes no mention of a possible delay or the halting of changes. Instead, HMRC has said the review “will focus on the implementation of these reforms, which are due to come into force on 6th April 2020.”
As a result, IR35 specialists have advised contractors to prepare for the introduction of the changes on 6th April, which will see independent workers lose the right to set their own tax status when engaged with medium and large firms in the private sector.
IR35 review “just a formality”
Staffing body, ASPCO, was one of the first specialists to react to the opening of the review, with Tania Bowers, the association’s Legal Counsel, doubtful of whether the Government is taking it seriously.
“There is certainly a feeling among some that this review is just a formality, with the Government obliged to follow through with a commitment that the Chancellor made publically last year during the run-up to the General Election.”
She also added: “While we are not altogether surprised by this announcement, we are disappointed that there is no intention of delaying incoming changes.”
This feeling was shared by Julia Kermode, CEO of FCSA, who last week said: “We have also learned today that the review will focus on the implementation of the reforms rather than the reforms themselves, which is not what was suggested and is not what is needed. I fear that the pledge is simply the Government paying lip-service to empty election promises and nothing short of an insult.”
“Prepare” for IR35 reform
With the Government appearing to ignore the advice of experts and delay IR35 changes, other interested parties – such Kingsbridge – has instructed contractors, recruiters and engagers to work off the premise that reform will be rolled out until told otherwise.
Legal Manager at Kingsbridge, Nicola Hayman urged the affected parties to “continue to prepare for incoming reforms – there simply isn’t time to wait for the outcome of the review and final legislation.”
“Delay” would “make sense”
Of a similar opinion was the Recruitment and Employment Confederation’s (REC) Chief Executive, Neil Carberry, who also recommended that the Government delays reform while an independent review is conducted.
“It would make sense to delay the implementation date while a full, independent review takes place. Delaying will allow MPs to properly take stock of the impact the legislation will have.”
He then went on to say: “Importantly a delay will afford businesses a more reasonable amount of time to prepare at a time when they are facing an unpredictable economy and major skills shortages.”
I’m ready.. We have wound down our company to make reasonable loses and will close post April. My current contract finishes end of March and like many more serior contractors who don’t have morgages, debts (of which there are many) planning on taking 6-12 months off to allow for rate increases to kick in to accomdate my ever increasing expenses whilst working. If it doesn’t happen, then I’m happy to retire from IT.
Steve, What’s your thoughts on taking pension contributions up to 40k per year in a well paid contract within IR35?
Nice idea, Iftikhar – unfortunately you’ll be hard pressed to avoid National Insurance contributions at source (both Employee and Employer) which will come in at less than 25%, on top of Income Tax. You’ll be able to re-claim income tax on your pension contributions, but not NI. You might be lucky enough to find an umbrella company that operates salary sacrifice (good luck) but you’ll find the pension providers on offer are very limited.
I’m ready too. Turned down all contracts that have been blanket judged outside IR35. Will wind up my company. Taken a permanent job for half the salary. Net result HMRC gets less tax.
What’s your thoughts on taking pension contributions up to 40k per year in a well paid contract within IR35?
If people retire like the comments above it’s a crazy situation.
theres a huge skills shortage already and I imagine a huge work demand once brexit happen (if ever)
I really don’t see how uk industry can survive without freelance people and this is clear discrimination against contracting.
I am a agency social worker and have been for the last ten years
Recently I have had to change my umbrella company due to my last one closing down. I have only been with them for a few weeks and astonished at how much of my weekly pay they take in fees! If I work a full 37 hours a week they are taking approximately £127.00 per week which over a month is a lot of money this is on top of my tax and insurance. Because of this I am contemplating going limited or sole trader, but don’t know if this is the best thing to do. Most of my roles are within local government or the NHS but have done some work for the private sector and in the past the MOD. In addition to this I work through a social work recruitment agency and they too take fees from me. It seems that I just cant win, can anyone give me advice please
Most government contracts are within IR35 which means contractor will effectively be working on the payroll and as tradition dictates umbrella companies handle the PAYE for these contracts within IR35. You cannot really use a limited company for these sort of contracts.
In my opinion you can do 2 things: 1) get a quote from other umbrella companies 2) get your personal pension going, ask umbrella company to make higher pension contributions then you will have lower NI and tax as pension contribution is not taxable (up to 40k per year).
Speak to accountant and financial advisor.
Prepare? Are you kidding. You’re either forced onto a PAYE Umbrella or forced out of a job.
End of discussion. The wife is forced onto an umbrella and is immediately 1500 quid a month worse off. For the first time in 20 years im struggling to find my next contract as jobs are scarce and competition is high now with so many forced out. So effectively the government have made me unemployed.
As a consequence we have decided to leave the country altogether and are now working towards that. It’s an utter disgrace..
When a Government actively targets the workforce it’s time to go and make your life elsewhere.
Clearly none of them have the first clue what contractors actually do.
Good luck trying to deliver an IT project with Permys or Outsourced large agencies.
Tuff times ahead for anyone wanting to get anything done.
Must be down to your last few cans of caviar.
All the best.
I’m ready too. Bivouaced in for the next 15 months within a public sector body, outside of IR35!! Let all the nonsense blow over and then see how the land lies. The whole situation is madness.
Already prepared. To busy learing Danish to worry about IR35, Brexit or Boris Johnson now. I think leaving the UK might turn out to be the best decision I ever made in my life.
It’s not a question of being in/out of IR35 – the big corporates just aren’t offering ANYTHING to freelancers using a UK Limited Company and understandably, they’re not looking to hire expensive resources with niche skills with all the other uncertainty in the economy… they’re openly saying that they’re “waiting for things to creak/leak”.
How difficult is it to set up a Limited Company in an alternative country and provide the work into the UK? Or is that loophole that’s only available to really big companies?
HMRC are a cancer to society.
The Gestapo finance wing are a particularly pernicious department who act above the law with impunity and are largely unregulated. They do what they please, change laws retrospectively to suit their agenda and all at her majesty’s pleasure!
This latest farce is all about targeting the large corps into frightening them away from hiring freelancers/contrators so ….. job done. They don’t necessarily care about those individuals retiring or leaving the UK.
The net result is they will bring in less revenue through tax as less people will contribute but they have never been very bright in what they do !
A few decent private sector customers (fortunately, mine included) are waking up to just how much this could adversely affect project milestones on capital projects. There is now an ongoing effort to align both contracts and working practices with outside IR35. Give it awhile, and the flood of contractors to private sector companies who are prepared to learn and adapt to contracts outside IR35, and the rest will have to follow suit, or lose the skills. I am quietly optimistic that, given a few years, contracting in the private sector will be thriving again, and HMRC will be left explaining where this ‘golden tax windfall’ promised has failed to materialise.
One thing that is surprising me is how many Line Managers, who are responsible for completing the CEST tool as the client, have absolutely no idea of the content, or even the existence, of the contract.
I was recently asked by my client of 3.5 years “Do you have the right to substitute?”. Yes, and it’s been clearly stated in every contract!
This appears to be a recurring theme also within engineering giant BAE Systems, who have recently declared most contractors inside from CEST assessments carried out by their Line Managers.
It hasn’t made a difference that many contractors have been paying NI and income tax under their limited company.
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