Quote Originally Posted by michaelC View Post
Hi Ian

I agree with you that we as contractors, don't have employment security and take risks.

But this IR35 legislation is already applicable in the private sector.

From what i read, I think that the "extention to the private sector" is just that the liability for paying employers tax will lie to the "hirer" and not the "worker".

So the end client will need to determine the status of IR35 and not the contractor which to me it sounds that its actually positive for the contractors.

Because right now, the client/agency and accountant couldn't care less if your contract falls inside the IR35 because even if it does, they would never be penalised if this is uncovered under an HMRC investigation. The responsibility lies entirely to the contractor (private sector) to determine the IR35 status and then bear any consequences paying both employer NI and employee NI plus normal salary taxes.

This change would mean that the contractor can be more certain of their IR35 status because the client needs to actually check if the contract falls inside IR35 or not, otherwise they will be penalised with employers' NI.

However ofcourse it may mean that the client will take a conservative approach and not offer as many contract roles as before. Or it may mean that client is forced to offer true independence and flexibility for the contractor to do their work.

I'm not sure what will happen or not. But to me it doesn't seem that this is catastrophic for contractors. It might actually be a positive thing. Right now clients/agencies couldn't care less about the contracts they offer as the risk of IR35 penalties lies only on the contractor.

I'm interested to know more on this topic. Let me know your thoughts on why you think this extention needs to be petitioned against.

I would be more interested in petitioning against their current wording of IR35 rules which are very vague, difficult to understand and not clear how to demonstrate that our business is compliant with them.

Thanks
Michael
Bold text above: True, sounds great, doesn't it? But it just means the tax will be deducted from the fees contractors receive. If the "hirer" has to pay Employers NI, they will pay the contractor less to compensate for this expense. So who actually pays it? The contractor.

This is just extending the current fiction about Employers NI for employees, that it is paid by the company. Wrong. Anything a company pays to hire people, including Employers NI, is personnel cost. If HMRC take a bigger cut of "personnel costs" it leaves less for employee salaries. It's more politically palatable to say that basic rate employees pay 12% NI and 20% IT than it is to say that government is taking over 40% of the pot. So Employers NI lives on and will forever.

Red text above: True, again. This is positive. It probably will reduce the cases of IR35 poison provisions in the client-agent contract that the contractor never knows about until he's under investigation and it is used against him.

Blue text above: True, again, at least partly. Risk-averse clients will either use fewer contractors or be quick to dump people into IR35. If there aren't that many clients who do this, contractors will avoid these roles, and they will probably end up having to pay a premium for contractors for these inside roles, which wouldn't be a bad outcome. If many clients do it, there will be plenty of contractors who need the roles, and supply and demand will dictate that the contractors end up worse off.

But those who aren't so risk averse and want the cost benefit of tax-efficient services will be more IR35 aware, and contracts and working practices will be better for IR35.

Finally, green text above: You might be right. There are some things about this that could be positive. If enough clients decide they aren't going to throw everyone into IR35, and are instead going to be careful about protecting the independence of their contractors, then contractors in those roles can rest pretty secure. In general, the liability isn't theirs, anyway. And those clients who are risk-averse will pay for it. That's the good scenario.

The bad scenario is that a large proportion of roles that shouldn't be inside IR35 are deemed inside by risk averse clients. If that happens, a lot of NI tax is going to be paid that shouldn't have been paid, and if a lot of clients do it, it is likely to end up hitting the contractors rather than the clients.

And every role that is declared inside that shouldn't have been is likely to hit someone with higher rate tax which could have been legitimately deferred. And it also takes from contractors the ability to smooth out income between periods of high-paying roles and out-of-contract periods, as well, which again could result in painful tax consequences.

In short, there's some potential positives here but some very likely and very significant negatives.