The PeopleAlchemist Edit: Good Lord: is it finally happening? To IR35 or not IR35, that is the question

“The IR35 implementation in the private sector is a matter of when not if”. AND  ” We shall see if the freelancers will continue to grow when tax advantages go down,” said Matt Taylor, speaking at the Association of Business Psychology Conference.
Long and behold, the Chancellor announced in the Autumn Budget that the changes to IR35 made in the public sector would be extended to the private sector.

THE IR35 TAX RULES

Contractors and freelancers could decide in the past their employment status. And consequently, they were also responsible for paying taxes. However, the controversial introduction of the IR35 tax rules ( terminology from the press release reference  – Inland Revenue 35 – aka IR35) firstly mentioned in Gordon Browns’ pre-budget speech in 1999 and then in the Finance Act for April 2000, has had a significant impact on contractors and self-employed in the UK.

Since April 2017, public sector employers have been required to decide which contractors fall within or outside the IR35 rules. This has led to some risk-averse decisions. Understandably.
According to an IPSE survey (The Association of Independent Professionals and Self-Employed) of 2000 contractors, 98% would actively turn down work that could lead to paying through PAYE. And many in the public sector have done so. Leading to an oversaturated market and decreasing rates.

WHAT HMRC SAYS

On the side of contractors and freelancers, there is the disadvantage of paying employment taxes whilst getting no employment rights. And, on the HMRC side (well, so they say), the public sector rules increase fairness in the tax system and ensure that individuals acting effectively as employees have the correct taxes. To me, it also seemed a great way to bulk the coffers and makeup budget shortages, respectively. Just saying….).

This year the government closed a consultation on extending the rules to cover the private sector. Now it seems it will proceed regardless of the many objections.

So now is the time for employers to properly consider relationships with employees and contractors as a strategic issue. Going through the workforce and contractors and establishing whether they are genuinely self-employed or employees.

Equally, employers should assess their existing contractor’s workforce. Not simply new workers engaged under the changed rules. Control, substitution and what is called mutuality of obligations are vital factors.

Get ready. The sooner, the better!!!