IR35 Disguised Employers
If you have been contracting for some time, IR35 will be a piece of legislation you should be familiar with.
Essentially it is anti avoidance aimed at preventing disguised employment, that is someone working through a Personal Service Company (PSC) as an employee but not paying the relevant income tax and national insurance.
With around 2m contractors in the UK, actually pursuing “disguised employees” has proved to be a near impossible task, the average time it takes to process a single IR35 case is in excess of 2 years.
Taking this into account, along with the significant reduction in HMRC staff, the consultation demanded by Chancellor George Osborne in the summer budget has been looking for easier routes to what some might deem as the taxation equivalent of low hanging fruit.
One suggestion that is gaining ground with advisors and HMRC alike is quite revolutionary. We know chasing disguised employees has not worked, so why not place the burden on the employers, or engagers as they are known.
It’s true to say that there will be far fewer engagers as opposed to “employees”, reducing the volume of entities to monitor, and it is the engager who has the ability to withhold tax if they deem an engagement to fall inside IR35.
It is common practice for banks, insurance and tech companies to contract a large proportion of staff through limited company’s, this would allow the collection of large amounts of tax, administered from just a few large corporates.
This could be a seismic shift in HMRC’s approach to IR35, we can only guess how the industry will react and what the ramification will be for intermediaries and company’s engaged to a “disguised employer”.
the consultation ran from 17th July to 30 Sept, we have yet to hear the findings.