Since IR35 came into existence n 2000, the new tax rules have been fraught with difficulties that have never been resolved entirely. In 2017, the government added an Off-Payroll reform to the mix, also called IR35. These two tandem tax changes will become a factor for contractors in the UK in short order, and there has never been less clarity about who is inside of IR35 and who is outside of IR35.
The unfortunate events of the past year with the pandemic and the downturn in engagement opportunities for contractors have not swayed the government in any way. They continue to indicate falsely that contractors are responsible for the annual tax deficit. This despite the fact that they have been offered no significant aid during the pandemic and that many of them are unable to claim any of the benefits that the new taxes will charge them for, simply because they are not employees.
Blanket determinations and other egregious abuses of contractors continue to be ignored by HMRC. Engagers are supposed to be responsible for determining the status of contractors, and there has been little support from the government toward this end. As a result, many contractors will now face incorrect status determinations that could cause them to be charged tax they don’t truly owe. All of this, while the government makes it increasingly difficult for contractors to defend themselves.
Some experts are hoping that there will be mention of IR35 and possible delay of the rollout in the next budget. There has been no indication that this will be the case, but the fact that the pandemic has not come to a close will hopefully lead to a review of IR35.
Many contractors are not hopeful about the possible delay of IR35 because the government has indicated many times that they wish to proceed with the rollout, no matter how little sense it makes under the current conditions. The actual budget will likely be focused more on economic growth and changes to corporate taxes.
Proponents of IR35 and the rollout have argued that businesses and contractors alike have been given plenty of warning and plenty of assistance to be prepared for the rollout. The government is eager to recoup the £1.2 billion that they are expecting to generate during the first year of IR35 being a part of contractors’ tax reality, and they are unlikely to draw back from their plans now.
The budget is expected on March 3, so contractors and experts will have the information they seek at that time. Until then, contractors should continue to do research into the changes that are coming and make sure that their current contracts are compliant with the new rules.
