This blog is based on points from the Chancellor’s 2017 Budget.
The Government have said that there will be no action on IR35 other than that which has already been taken, but they intend to consult further on non-compliance with the relevant legislation next year.
The phrase IR35 is unfortunately only too well known to people such as IT Contractors. However in case you have not heard it before, the Government some years ago put regulations in place to deal with people working through Limited Companies where the work that they do may amount, if they did not have a Limited Company, to a personal contract of employment.
If you are working through a Limited Company and your work is tantamount to a Contract of Employment, then you are not able to pay yourself by dividends, instead you have to apply PAYE to all your withdrawals from your Company. There are also restrictions on what expenses you would be able to claim in your company accounts. The regulations governing this element of the legislation are known as IR35.
Recently, the Treasury has put pressure on other Government departments to either reclassify all their professional contractors as employees, or else apply IR35 to their Company income. The Government has similarly lent very heavily on the BBC in this regard. The feedback I am getting on this from professional contractors is that nobody wants to work for the Government these days under the above conditions, unless the Government considerably increases the rate of pay.
Thus, if the Government intends to control public spending, their actions are actually tending to increase it. Government departments now have to offer a higher rate to IT and other professional contractors. This is also creating great discontentment among contracting professionals in general, and people are saying they would rather go and live in Australia and get work over there than continuing working in the UK. We may therefore see the beginning of a “brain drain”.
If you are a one man or one woman Company selling professional services of any kind – computing, legal, engineering, and so forth – and you have any doubts about whether you might have to be reclassified or put under the IR35 provisions, we suggest you get in touch as soon as possible to discuss the terms and conditions of your contract. We can then discuss any other options that you might wish to take to preserve the status quo as far as possible or indeed to make matters better rather than worse.
Please obtain specific advice from ourselves if in doubt. No responsibility is taken for any act or omission on your part on reading this without further advice.
– By Stephen Handley, FCCA