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In the Autumn Budget report, the Chancellor announced that a consultation would take place to determine whether IR35 – a tax reform which aims to prevent freelances and contractors who essentially function in the same way as permanent staff, and their employers, from paying less tax should be rolled out to the private sector – or not. Craig McCall, Operations and Technical Director at Gorilla Accounting, shares his views.
The consultation on IR35 reform is set to take place during early 2018, taking into account external research which has already been commissioned. The findings of this consultation are expected to be published later in 2018.
The Autumn Budget 2017 report states: “Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a company.”
The rhetoric from the government in the Autumn Budget around the ‘success’ of the public sector changes does not tally with reports that we hear from contractors who have been engaged on public sector contracts or with news from government departments that now face skills shortages due to walk-outs by contractors.
We have received reports from contractors who have told us about blanket IR35 decisions being made by public sector bodies in April, only to be later reversed when contractors walked out of projects.
There has also been cases where multiple agencies have supplied contractors to the same project and different contractors fulfilling the same role on the same project have been subject to different taxes.
The roll-out to the public sector can best be described as lacking in organisation, with responses to the public consultation being ignored by the government, very little information being made available to the public about the changes ahead of implementation and the status tool being released at the very last minute.
It is unlikely that the private sector would tolerate this if the government did press ahead with a private sector roll-out.
IR35 is also known as ‘intermediary legislation’. The legislative tax measure was introduced in 2000 in order to tackle ‘disguised employment’ by employees masquerading as contractors in order to receive the tax advantages available.
So, if an employee leaves work on a Friday and returns back to work on a Monday to carry out the same role as a contractor, in turn saving themselves money on tax, this is when IR35 will come into play.
If you’re caught under IR35, you will be required to pay tax through PAYE which includes making National Insurance Contributions and paying Income Tax.
*Craig McCall is the Operations and Technical Director at Gorilla Accounting, a specialist accountancy firm for Contractors and Freelancers operating through a Limited Company.