IR35 To be extended to the Private Sector from April 2020
Amid claims by HMRC that as little as 10% of the contractor market who should be subject to IR35 are applying it, the Government has confirmed the extension of IR35 tax regulations into the private sector from April 2020. HMRC has estimated the cost of non-compliance could be as high as £1 billion, rising to £1.3billion by the 2023/24 tax year.
Whilst the move has been anticipated for some time, the draft finance bill published recently makes it clear that the responsibility for determining a contractor’s IR35 will shift to the organisation employing the contractor, regardless of whether they are supplying their services directly (and paying themselves via a personal services company) or via an agency.
It is expected that the new laws will affect around 170,000 contractors. Estimates from Contractor Calculator, an advice website, suggest a contractor earning £100,000 a year would be £7,500 worse off taking into account a reduction in fees as a result of increased taxes for the hiring firm as well as additional National Insurance.
Tim Haggard, Partner at Haggards Crowther, says “This is another assault on the self-employed and entrepreneurs that make up a significant proportion of our private client base”. He continues “With many companies concerned about the mid to long-term outlook for the economy, this move makes hiring experienced and qualified consultants, which could be the right option for companies during periods of uncertainty, more expensive and less attractive”. Concluding he says “IR35 has long been a contentious issue and this latest move does not show a true understanding of the contractor market”.