New Legislation to Impact Contractors

6th April 2017
Document Signing Legislation

With the new IR35 legislation now technically in force, there is still much confusion as to what it means and how to handle the new changes. We discuss what publications are saying around the issue and what it means for employers.

What is IR35? 

Contractor Calculator states that:

“IR35 is tax legislation that is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.”

The HMRC calls these workers “disguised employees”. They work as contractors and are as such subject to lower rates of tax, however it is argued that they are in fact employees and using contractor status in order to pay the lower rates. There is now a crackdown on this practice via IR35 although it has been heavily criticised with Computer Weekly stating that: “IR35 essentially seeks to turn a legitimate one person small business into being an employee”

For give a specific example of how it might work also from Computer Weekly:

“For instance, someone deemed working inside IR35 who earns around £50,000 a year would pay out £13,000 in employment taxes, while a “non-compliant” limited company contractor, who essentially working as a permanent employee in all but name, could end up paying as little as £2,000 in tax.”

Severe Criticism

IR35 has received severe criticism from multiple sources as to how its its implementation has been handled. For example Computer Weekly cited that the pending legislation has not left people affected with a great deal of time in which to make the necessary changes - this includes changes for public sector bodies who have been scrambling to get everything prepared and have lost contractors as a result. Transport for London and the UK Hydrographic Office have also lost contractors in the process. The final bill arrived just weeks before implementation, leading to widespread panic among those affected as to what action they needed to take.

Recruitment

RecruitmentGrapevine reported that recruiters won’t be liable for any tax shortfalls from the contractors they source for clients. 

As for employers, without specific expertise around IR35 there remains much confusion as to its application. 

One CEO said:

“Without in-house IR35 expertise, the immediate concern is that public sector clients are simply not equipped to make such decisions, and fast, given that 6th April is fast approaching.”

With the changes in force, it remains a confusing outlook for contractors across the UK.

*RecruitmentRevolution.com are not tax specialists - copy within this post is taken from external resources and referenced throughout*

There is now a crackdown on this practice via IR35 although is has been heavily criticised.