UK Contractors: How will IR35 reforms affect Contractors and Companies?

I am an independent SAS consultant and have been working through my own company, Holland Numerics Limited, since 1992. In the UK the vast majority of IT contractors use Limited companies when working for other companies, which protect both the contractors and their clients. Contractors also benefit from the clients paying their company, and then the company paying them, so there can be tax and National Insurance savings. This has been seen by Labour and Conservative governments as tax avoidance, and the Labour government introduced IR35 legislation in 2000 to restrict these benefits for contractors who are also company directors when they were only working for a single client, labelled as “deemed employees”. This forced contractors to pay the same tax and National Insurance as permanent employees, but without any employee benefits.

It should be noted here that permanent employees receive a number of benefits as part of their employment, but contractors have to pay for these themselves:

  • payroll processing, including tax and National Insurance payments
  • pension payments
  • employer National Insurance contributions
  • business-related insurance
  • travel expenses
  • conference attendance fees
  • equipment purchase
  • office facilities

Until now the responsibility of stating whether a contractor is inside or outside IR35 and paying the correct tax and National Insurance payments has been with the contractor’s company, but the reforms move these responsibilities to the client (determining IR35 status) and agency (paying the correct tax and National Insurance payments). Some companies have already decided to set the IR35 status of all of their contractors to inside, including Lloyds Bank, Barclays and GlaxoSmithKline, making them “deemed employees”. The following article describes the issues of this reform for contractors and companies:

Companies IR35 Fears of Contractors Leaving After Conservatives Reform (ITContractor.com)

There is now a question about what can contractors do to stay outside of IR35, and then persuade their clients not to state that they are inside. I can’t claim to be an expert on this subject, but I can suggest some organisations who are much better qualified to answer this question. The following links will help to explain the problem and possible solutions:

CK Associates IR35 Event held on 07Nov2019:

IPSE (Association of Independent Professionals and the Self Employed)

 

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