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IR35 problems

IR35 Continues To Cause Problems For Contractors – It’s Important To Be Prepared

Unfortunately, as we head into the new tax year, recent news has done little to change our view that IR35 could cause significant problems for contractors.

Instead, the latest reports on IR35 have largely confirmed our belief that these reforms have been poorly conceived, will limit opportunities for contractors and could lead to many being taxed as if they were permanent employees.

In January, we saw that Transport for London (TfL) planned to introduce a blanket ban on contractors operating through their own limited company. Now, the NHS is said to have followed suit, with ContractorUK reporting that its entire PSC workforce has been told it will be caught by the new legislation.

It’s unlikely contractors will agree to paying the same tax as employees without receiving the same employment rights, so the most likely outcome of this decision is people either leaving the NHS or demanding higher rates for taking NHS roles – both of which spell bad news for the health service.


50% within IR35

Even if businesses don’t impose blanket bans, it seems many contractors will find themselves being deemed within IR35.

ContractorCalculator has recently conducted analysis of IR35 status through its free testing tool and has found that 50% of contractors are failing and facing status issues.

Given HMRC’s previous track record when it comes to its self-assessment tools, we can expect a significant number of contractors to fail status tests if public sector bodies take their decision based on its official Employment Status Service Tool.


HMRC also affected

There has also been the almost comical news reported in The Register that the IT contractors who built HMRC’s IR35 self-assessment tool have themselves been found to be within IR35.

The Register reports that sources have claimed that the IT consultancy responsible for building the Employment Status Service Tool had a total of 250 contractors within the department – and all of these are likely to go under the changes.

Linked to this, there were reports in Computer Weekly that HMRC’s digital teams could dramatically drop, prompting fears of a brain drain at the department.

It’s difficult to think of a better illustration of the fact that these reforms have been poorly thought out than fears that they will damage the department playing a leading role in pushing through the reforms.


Be prepared

It’s naturally concerning that there is a steady stream of news stories showing the damage these reforms could do to the public sector and contractors’ roles within it.

In these circumstances, it’s important contractors are fully prepared and understand what these reforms might mean for them.

We’ve created a comprehensive guide to the IR35 reforms, which can be downloaded here.

And, we’re also offering a free 10-minute consultation to anyone concerned about the changes, during which we can discuss the potential impact of the reforms on your take home pay and a number of options you can pursue to get the most out of contracting. If this is of interest, please do get in touch with us.