Many newer contractors started after the Government put IR35 in place and wonder at the IR35 history. Here, we will give them a brief explanation of the IR35 history. See IR35 Factors for more info.
The Labour Government first implemented IR35 in 1999. Companies had been laying off permanent employees on the Friday and re-employing them as contractors on the Monday. They were doing exactly the same job.
It was great news for the ‘contractors’ as they were able to claim a lot more against tax and take more income as dividends rather than paying the higher rates of tax.
It was great news for the company as they saved money too, as they didn’t have to pay such things as Pensions, holiday pay, sick pay etc.
Changing IR35 History
Of course, it was HMRC and the Treasury that lost out. There was a great furore in the press about it. When the Press shouts the Government always like to do something about it.
They brought in IR35 to stop what they saw as ‘disguised employees’ Unfortunately it caught a lot more than those disguised employees in its IR35 net. Long term UK contractors also fell into the net.
Some contractors set up the Professional Contractors Group (now IPSE) to campaign foro the removal of IR35. This was a significant moment in IR35 history. They lost several high court cases over IR35. However, they did win a lot of cases at lower levels at Special Commissioners level.
Prior to the last election the Conservative Party gave winks and nods to the Professional Contractors Group (now IPSE) about abolishing IR35. What they actually said was that they would ‘look at’ IR35 again after their election.
IPSE were so happy that they rushed out a press release telling contractors that salvation was at hand.
After the election, the Conservatives did ‘look at’ IR35 again – and decided they would keep it. Their main fear was that if they abolished IR35 then contractors would quit their Umbrella Companies in droves and go back to using Limited Companies.
As the taxman gets £10,000 a year extra from Umbrella Company contractors than they do from Limited Company contractors, they didn’t like this idea.
However, they went further than this. Chancellor George Osborne saidÂ that they were looking to STRENGTHEN IR35. They were going to hire 36 extra enforcers based in Edinburgh, Croydon and Salford.
IR35 history shows that both the current Government and Labour have got their eyes set on contractors and the money they make.
So concludes our brief IR35 History.