Although the Conservatives were somewhat reluctant to join the other political parties in promising an IR35 review, their win will at least remove some of the uncertainty surrounding the off-payroll reforms in April next year. The landslide vote looks likely to bolster the party’s belief in its own policies, and with the new legislation ready to go, it’s unlikely that a review will bring about major changes.
It’s more likely that some gestures will be made around certain issues such as the small business exemption and what constitutes ‘reasonable care.’ This will allow Johnson’s government to make good on their promise, while still ensuring they don’t wave goodbye to the extra tax revenue they’ve been counting on. With pressing concerns like Brexit dominating the agenda, it’s unlikely that, at this stage at least, the government will make IR35 its priority.
A letter made available to IR35 Guru from a contractor who contacted their local MP certainly seems to suggest as much. The response from Royston Smith, Conservative MP for Southampton, simply rehashes the government’s rhetoric that “Such rules only apply to individuals who genuinely work like employees through a company. HMRC estimates that two-thirds of people working through a company are genuinely self-employed. Consequently, these individuals are not affected by IR35, and the Government has made clear that will not change.”
As the ‘no PSC’ ban picks up with renewed vigour this week, it’s hard to justify the above assertion to the thousands of contractors forced onto the payroll. Businesses such as Vodafone and GlaxoSmithKline have become the latest in a long line of firms that will not conduct any status determinations for their contractor workforce. Instead, their contingent workers will be forced onto Agency, Umbrella or the company’s payroll. In some cases, contractors won’t even get a choice about their payroll provider.
Insolvency practitioners have reported an increase in the number of contractors approaching them for advice on closing down their limited companies. Writing on LinkedIn, AR Tax Accountants said that, based on posts it has seen, most contractors expected the off-payroll framework to be introduced “without any changes” to what HM Treasury proposed at Budget 2018.
The concern is that a number of agencies and end-clients might wait until the final legislation is revealed before they start their IR35 preparations. By this time, they will be cutting it fine to be ready, and consequently there may be a final flurry of blanket bans that catch contractors out. Although a review is a positive step, a government in a rush, under pressure, or constrained by its spending commitments could make no changes whatsoever.
The key message for contractors, agencies and end-users is loud and clear – they can’t afford to wait for the February Budget and must act now. Engagers will want to ensure that payments have filtered through the multiple layers to their end-recipients in good time for the deadline in April. Ex-tax official Carolyn Walsh said, “If it’s clear that a contract should be paid under IR35, it’s not a bad idea to use an umbrella company. Where contractors are caught by false blanket inside IR35 decisions, an umbrella will be needed only for as long as it takes the storm to pass.”
The advantage of using a PAYE umbrella company is that it removes the threat of IR35 without limiting the contractor’s future options. At this stage, many contingent workers may feel unsure about which route to take. Contracting through an umbrella company gives the contractor the advantage of being able to place the limited company into a dormant state that can be easily reactivated once the IR35 risk is removed.
This content has been supplied by IR35 Guru.
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