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Tip of the Iceberg

Contractors have little confidence in private sector’s readiness for IR35 reform.

Despite the ongoing IR35 consultation and the Government’s insistence that further reform is merely a ‘possibility’ and not set in stone, contractors, private sector businesses, and recruitment agencies, are readying themselves for an announcement this year.

Should IR35 reform be unveiled in the Autumn Budget this November, the chances are that private sector companies and agencies will only have up until 06th April 2019 to prepare for the arrival of the new rules.

Private sector businesses have never needed to set the IR35 status of the contractors they engage, nor settle up with HMRC for any missing tax following an IR35 investigation. So the task that looks increasingly likely to be presented to 5.7m private sector companies is huge, with massive financial implications should they get things wrong.

HMRC’s recent victory against BBC presenter, Christa Ackroyd, just goes to show how expensive setting an incorrect IR35 status can be. The former ‘Look North’ presenter was deemed to owe HMRC £419,151 in missing income tax and National Insurance Contributions.

In the near future, these fines could be passed on to private sector companies, as is now the case in the public sector.

Exclusive research by Qdos Contractor reveals the extent of contractors’ concerns. Just 5% of 1512 UK independent workers are confident the private sector is prepared for potential IR35 reform, leading you to question whether end engagers are actually capable of making accurate status decisions on scale.

A telling 74% do not think their private sector clients and the agencies which place them are ready to do so, while 21% are unsure – and it can’t be said that simply not knowing is much of a vote in confidence.

Understandably, contractors do not want to be wrongly placed inside IR35 as a result of their client protecting its own liability. And the blanket IR35 determinations made in the public sector following reform last year is perhaps another reason why they are so concerned.

At last count, SMEs made up 99.3% of all private sector businesses in the UK, and many smaller companies engaging contractors do not have the in-house expertise to make accurate IR35 assessments.

Just as contractors gear up for the likelihood of further IR35 changes, the private sector must start preparations too. Should end engagers assess their current ability to make well-informed status decisions now, and not in a frenzied rush in the weeks before potential reform, the upheaval caused by changes to the IR35 legislation could be kept to a minimum.

By Contractor Weekly


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2 thoughts on “Tip of the Iceberg”

  1. Phil the Pill

    While I find the HMRC pursuit of the small private contractor somewhat tiresome and a poor use of limited resources there is the case that any contractor should be seen to be paying themselves a “living salary” i.e that would cover a mortgage and normal outgoings, so as not to attract attention when they submit their company returns and self assessment. From a personal perspective, I pay myself as much as possible after logging some expenses for maintaining a home office and pay the employee and employer NI – still get £3.0 K employer NI relief. Any remaining profit after CT is paid as a dividend; given that we now only get a £2.0 K tax break on dividends I sold a share of my company to my partner so we can now get £4.0 relief on dividends! So unless anyone is magically hiding these massive dividends offshore they still get taxed on them if declared legally. Just not worth the hassle of getting the 6 o’clock knock from HMRC and being turned over for investigation.

  2. Khesapeake

    What about all those shareholders who have no idea that their investments are now liable to taxes as HMRC are now punishing them for investing. I know several people who only have very modest PAYE incomes (and have never been asked to submit tax returns), but as part of investments they”ve made (e.g. inheritance windfalls) they also earn several thousand Pounds a year in dividends, so are accruing hundreds of Pounds a year in tax liabilities that they”ll never be able to afford if HMRC asks for all that retrospectively (especially if they get the traditional HMRC special interest rate, which appears to be about 10x higher than any savings account).

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