The IR35 Revolution… 

IR35 – or IR Thirty-Five in our case – is the biggest threat out there to Contractors at the moment.   

I’m fairly sure that if you are a contractor, you already know.  You might even be spending your lunchtime talking to other contractors in quiet corners of banks, oil rigs and other big institutions up and down the country.  Here goes anyway: 

IR35 is tax legislation designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. Such workers are called ‘disguised employees’ by Her Majesty’s Revenue and Customs (HMRC) 

Not a bad definition in itself.  I have slight problem personally with the implication that ‘tax avoidance’ is a bad thing, but I guess I’m in a minority.  Put £100 into your pension, that’s tax avoidance.  Choose to get a ferry to Disney Paris rather than fly, filling up with diesel while you are in France – Tax Avoidance.  Also, if you are, in fact, going to be treated like an employee, how about a few paid holidays and a pension scheme please?  I’ve seen those adverts with the weird creature on the TV, I want one of those workplace pensions! 

All that being said, the legislation was a bit toothless until the lovely people at HMRC and the treasury decided to blanket apply it to the public sector.  Then in came the money and HMRC’s new mantra seems to be the same as Jack Sparrow’s, ‘Take what you can…give nothing back’ 

The Public Sector ‘Reform’ 

In Fact, the public sector ‘reform’ was the best revenue-raiser for the treasury in 2018’s Budget.  I don’t know about you, but this was in fact, the biggest shake up of any profession I have ever seen.  Some of the unintended consequences have been a disaster – look at the number of nurse vacancies in the NHS, a list that started growing at the time this was introduced. 

That being said, I sat with Locum Doctors and did the CEST test and they passed.  They presented the findings to their client and the clients ignored them.  It doesn’t matter if you passed or failed, you failed.  The feeling was, if parts of your contract place you outside of IR35, we will just change the contract. 

They’re here.. 

So, the bad news is that for our glorious chancellor and the HMRC if you are a contractor you, my friend, are now low hanging fruit.  The loan charge and disguised remuneration purge is another example of hitting those that just can’t hit back.  Amazon and Google have teams of lawyers ready to tear a poor hard working (cough) civil servant to shreds and bottomless pockets to pay them. 

Then there is this thing called CEST. It stands for Check Employment Status for Tax. Or a stacked deck. A test, in fact, almost purpose built to frighten agencies and clients into classifying you as inside IR35.  Even though it ignores many of the badges of a trade, it almost blanket assesses everyone as inside IR35.  It’s kind of like choosing horses to back after they have run, the result is guaranteed but the exercise is fairly pointless. 

Then there is the way that this is being implemented.  Think of an agency that places you.  In the past, if you broke the rules you would end up paying.  The poor agency now can end up carrying the can.  Which agency out there is going to take the risk of an NI hit on a large portfolio of clients? 

So here is where it gets sticky.   

The odds are stacked against you if the powers that be decided to hit you as hard and as low as they hit the private sector.  We have started to hear rumours that some of the big users of Contractor’s services are starting to run down contracts.  Insisting instead your current contract ends, you have to go permeant.  So why be a Contractor at all? 

Because, you will earn more and keep more and can walk out when the boss turns out to be a nightmare.  And, I don’t know about you it really annoys the bejesus out of me when our government (more accurately in this case, in my opinion at least, our civil service) starts to attack my chosen way of life.   

If we accept the agencies might not want to place you on a contract and the client might not want to pay you as a contractor, then what can you do?   

Fighting back. 

Stop behaving like a Contractor and start behaving like a real trading business.  We have some ideas on this front and are working hard to build them into a robust and defensible position.  But be aware that there isn’t a magic bullet.  No product that you can buy, like an invisibility cloak, to keep you off the radar. 

The trick is to hide in plain sight and make yourself into a trading company that if tested for the ‘is this is a proper business’ gene, passes with flying colours. There are two businesses out there today that we have worked with to equip them with a layered defence against IR35 which DOES NOT RELY on artificial manoeuvres.  It takes what you do already and beefs it up, so you stop being a Contractor and start being a business.   

In short if you take your own stuff to work, decide who does that work and have proper commercial operations – that does not sound like a ‘disguised employee’ to me.  This, at its heart is kind of what the last BBC IR35 case was won on.  The ‘star’ in question was a ‘persona’ when she was on TV.  She took her own equipment to work – her persona – and made money from that.  If stuff like this is being treated as disguised employment, we have no more one-man bands!  The death of self-employment! 

Busy, successful people like yourself do not have the time (or the vast resources) to fight fights that can’t be won.  We choose to fight on our own terms.  It is, in my opinion, time to begin a guerrilla war against the threat of IR35…don’t wait until it is too late.  

Reform, restructure and build your defences now! 

If you’d like to get some accountancy advice, why not give us a call on 01925 938946