Contractor Day of Destiny
Ever since 1999, when IR35 came on the statute books, contractors have been hunted by both Labour and Conervative Governments. They want money. This Wednesday will be the contractor day of destiny.
It could be the most important day for contractors since 1999 when IR35 came in.
Chancellor George Osborne has told us some things are going to happen and we have had to read the tea leaves of leaks to the newspapers, and elsewhere, for hints and clues as to what he is going to do as regards UK contractors.
Travel and Subsistence Expenses
We know, with a reasonable degree of certainty, that the Chancellor is intending to remove the ability of both umbrella company contractors and personal service company contractors to be able to offset travel and subsistence expenses against tax.
We know it as he told us he would do so.
This would hit contractors hard but umbrella companies even harder.
Travel and subsistence is the main expense that umbrella company contractors can offset against tax.
Without it, would umbrella company contractors continue to pay their monthly fee to the umbrellas if they were paying more in fees than they are able to get back from offsetting expenses against tax?
Off Payroll Contractors to go On the Payroll
The next we heard was in a leak to the Guardian and Daily Mail a couple of weeks ago.
When we see it was a leak, this wouldn’t be by someone in theTreasury spilling the beans. This would have been a deliberate leak with the Chancellor’s permission.
According to this leak, contractors who stayed more than a month with a client would have to go on the payroll of that client.
This applied to both umbrella company contractors and personal service company contractors.
Getting Rid of Contractor Intermediaries
It was said in the leak that the Chancellor wanted to get rid of intermediaries altogther, forcing contractors onto their clients’ payrolls.
By intermediaries he means personal service companies and umbrella companies.
This is an existential threat to umbrella companies.
It would also hit contractor accountants badly, who set up these personal service companies for contractors and do their accounts for them.
New Online IR35 Test
Now the latest is that HMRC are devising a new online IR35 test.
Contractors would have to take this test once they had been at a company for a month to see if they are inside IR35 or outside IR35.
HMRC will keep the details of those who have failed the IR35 test for future reference.
It all sounds a bit like Big Brother – and I don’t mean the TV show.
Clients Testing Contractors
Clients will have to insist that contractors take this test once they have been there a month.
In practice, clients will probably want to know, before they take contractors on, whether they will pass the IR35 test or not.
The Chancellor is hoping to get £440m in extra tax this way.
However, clients are not going to want to take contractors who are caught by IR35 onto their books.
So, what will they do?
They will be more likely to hire contractors who pass the IR35 test and operate through their limited companies.
So, the Chancellor will get less money and not more.
The contractor Day of Destiny approaches fast.
We will know more on Wednesday.