IR35 in light of the autumn budget

8th November 2018

 

The autumn 2018 budget

Last Monday saw the Chancellor of the Exchequer, Philip Hammond, present the Budget to Parliament.

For Contractors, there was a lot of anticipation on what Mr Hammond was going to present as it was undoubtedly going to include an update on IR35 reforms following a consultation by HMRC over the summer. The consultation was a natural response to the Governments perceived success of the reforms made to tax rulings in the public sector in April 2017. These rulings were made in order to combat millions of lost pounds in tax revenues from people acting as ‘disguised employees,’ otherwise known as the ‘synthetic self-employed.’

It meant that public sector organisations were now responsible for determining whether or not the Contractors they worked with should be treated as salaried employees and pay tax or as off-payroll workers. Before this move, it was up to Contractors themselves to declare their tax status.
 

IR35 reforms in the private sector

As predicted, and despite wide criticism of the consultation on IR35 in the private sector, Mr Hammond announced that IR35 will indeed be rolled out to the private sector.

What wasn’t expected was that the reforms will be set to go live in April 2020, not the anticipated April 2019. It’s also only relevant to large and medium-sized businesses; that’s any businesses with more than 50 employees.

As with the reforms in the public sector, the responsibility for operating according to IR35 will shift the onus from the individual Contractor determining their employment status and on to the business or organisation.

This move by Mr Hammond was the biggest new revenue raiser made in the Budget.
 

What this means for Contractors

Feedback, since IR35 was rolled out to the public sector, has suggested that many organisations have applied a blanket approach to Contractors, rather than assessing each Contractor individually. They have instead chosen to treat all of their Contractors as salaried employees and inside of IR35 to avoid the risk of hefty fines.

This has made Contractors liable for paying the same tax contributions as full-time employees, compromising a large chunk of their pay, while not benefiting from employee perks like sick pay and holiday pay. This is just one of the reasons we recommend Private Healthcare and Income Protection to our clients.

With the fears that the same will be said for private sector organisations looking to work with Contractors, there is a lot to be done in the interim between now and April 2020. Use this time to prepare.

One of the ways you can do that is by remaining on top of any announcements and reports produced by HMRC and keep in open communications with your clients, ensuring that everyone is aware of what this might mean for your work going forward.

It’s also important to be aware that despite strong reactions from the contracting community in response to the Budget (Chris Bryce, the CEO of IPSE has warned, “The government’s smash-and-grab mentality will, therefore, punish the overwhelming majority of genuinely self-employed people, heap a massive administrative burden onto businesses at a time of Brexit uncertainty, and also undermine one of the UK’s most dynamic and productive sectors”*) HMRC have made a promise of support in the Budget:
 

“To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt, minimising administrative burdens for the vast majority of engagers, and HMRC will provide support and guidance to medium and large organisations ahead of implementation.”

 
[pg 42 of the Budget]

Not only that, the summary of responses to the consultation was published on the same day as the Budget and notes that HMRC has recognised many of the current challenges with IR35 that respondents and stakeholders gave. As a result, they are going to look at how their CEST tool can be bettered as well as commit to providing detailed guidance, support and education to Contractors, businesses and organisations so that the changes are understood and implemented in April 2020.

Before then, remain hopeful and continue to assess your status against your contract as you normally would.

* Quote taken from here

All content is accurate at the time of publication

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