Will the new PM end the war on Contracting?
Back in 2000, the then Labour government introduced IR35 which was supposed to tackle the problem of ‘disguised employment’. Since then, additional laws such as the off-payroll tax and the loan charge have been introduced, which many say, is damaging the flexible workforce.
As the country is set to see a new Prime Minister tomorrow the industry is calling for the war on contractors to come to an end.
What is IR35 and what is a ‘disguised employee?’
A good example of a ‘disguised employee’ is when an employee leaves employment with their employer on a Friday, only to return to the same role in the same office on the Monday. When they return on the Monday, they are engaged as a contractor or consultant and paying much less tax as a result. The organisation saves a significant amount of money too as they no longer have to pay employers’ NIC or offer employment rights or benefits.
IR35 was meant to defend both workers’ rights from unscrupulous employers and the Exchequer from lost tax.
How does IR35 work?
In essence, IR35 would look at the relationship between company and worker and undertake a series of processes that determine if the worker could in fact be an employee. If the outcome is yes, HMRC can demand income and NICs, plus penalties and interest going back several years.
Not content with IR35, the current government added an off-payroll element to the existing rules. This new rule, which already applies to the public sector, is set to hit the private sector in April 2020, unless of course, the new PM has other ideas?
The off-payroll tax further cripples the freelancer’s contract and allure as it places the responsibility of determining if a contractor is inside IR35 in the hands of the client. If the contractor is deemed to be inside IR35, the client must deduct employees’ NIC and income tax from the contractor’s pay as well as paying NICs.
It’s no wonder freelancers and contractors are up in arms, suggesting this is designed purposefully to alienate professional contract workers.
Letters to the leadership candidates
As a result, ten contracting organisations signed a joint letter to the two Conservative leadership candidates, Boris Johnson and Jeremy Hunt, urging them to reconsider the damaging legislation.
Dave Chaplin, director of the Stop the Off-Payroll campaign, said:
“On behalf of hundreds of thousands of contractors and freelancers, we are calling for the next Prime Minister to stop this war on contracting and to instead sit down with the sector to discuss with us all how best to recognise and celebrate the UK’s flexible workforce”.
In addition to IR35 and the off-payroll tax, the letter addresses the Loan Charge which, according to these leading organisations, also fuels the war on contracting.
Watch this space…
Whilst it’s unclear at this stage what the outcome will be, we at TD Group urge all contractors to keep up to date with the latest IR35 legislation. Be clear if you’re ‘inside or outside’ and be prepared to back this up should HMRC come calling.
If you need further help, please don’t hesitate to make contact with us.