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Contractors face draconian IR35 crackdown, with new test forcing 90% into PAYE

Contractors are facing a major crackdown on IR35 that will introduce a new test forcing clients to become responsible for compliance and driving 90% of personal service company (PSC) users onto the payroll.

Media reports by the Guardian and on the MailOnline agree that the Chancellor George Osborne is behind the changes to be announced on 25 November 2015 in the Autumn Statement that are designed to raise an additional £400m a year in extra income tax and National Insurance Contributions (NICs).

However, ContractorCalculator CEO Dave Chaplin is doubtful as to whether the Treasury and HMRC can act that swiftly following the recent closure of the consultation around HMRC’s Intermediaries Legislation (IR35) discussion document.

“We’ve spoken to HMRC and the message I got was that the taxman wants any measures to be proportionate and not increase the administrative burden on either contractors or their engagers,” highlights Chaplin.

“That these announcements are shortly before the Confederation of British Industry’s (CBI) annual conference is no coincidence. The IR35 measures revealed in media reports suggest that clients will suddenly face paying employers’ NICs for their contingent workforce, in addition to all the extra costs of employment such as holiday, sick pay and other perks. I just can’t see big business agreeing to these measures.”

According to the Guardian’s chief political correspondent Nicholas Watt, around 100,000 will be affected by new rules: “The government is proposing that a consultant using a personal service company would be obliged to move on to the payroll if they work for a business for more than a month. Businesses, rather than the individual, would be responsible for overseeing the rules. An agency would be responsible if they provide consultants to businesses.”

The MailOnline’s deputy political editor Jason Groves writes that: “The Chancellor is now looking at shifting the burden on to employers, and introducing new guidance to make it much clearer what constitutes employment.

“In future, anyone working for an organisation for more than a month will normally be considered to be an employee. HM Revenue and Customs is also devising an online checklist to allow employers to assess quickly whether a contractor should be reclassified as a member of staff.”

He adds: “A contractor who uses an agency to find work with a range of IT firms for short periods will still be able to classify themselves as a personal service company. But a middle-manager brought in to do maternity leave cover at a firm will in future have to go on the firm’s payroll.”

Chaplin concludes: “The impact of these measures if implemented will be catastrophic for the UK economy, and destroy the livelihoods of many legitimate small business owners.

“These proposed measures, alongside others such as the abolition of expenses tax relief, show that the supposed pro-business Conservative government has declared war on contractors, making it clear that enterprise and entrepreneurship are no longer to be valued or rewarded in a Tory-led UK.”

Published: 07 November 2015

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