HMRC is playing with IR35 again, and it could have serious consequences for all contractors


I recently wrote a post about the mixed signals that the government is currently giving out to contractors, well it seems that those signals are becoming less mixed and more negative. There are rumours flying around about the government’s plans for IR35, thanks to leaks published in the Guardian and Daily Mail. If you are not sure what IR35 is, it is all related to how much tax contractors pay. If you are “within” the scope of IR35 then you should be paying higher tax than people who are “outside” the scope of IR35. It’s an important piece of legislation that every limited company contractor should be aware of. Here’s a great guide to everything IR35.


You would think that employment and self-employment are easily distinguishable but, when it comes to tax, HMRC feel that they are not. It’s all about disguised employment; are you basically a permanent employee but acting like a contractor to pay less tax? The contractors that we work with here at Corriculo will go into a company for a fixed period of time, possibly get some extensions, and then move on to their next company. It is not uncommon for good contractors to be frequently extended and end up working for longs periods of time in the same role. I’ve worked with contractors who have stayed at the same company for several years. This is where the waters become distinctly muddier!


I’ve heard permanent employees moan about the fact that contractors earn more than them (particularly within highly skilled or technical roles). There is a very good reason for the higher rate though, and it’s the same reason that they should be entitled to work on a self-employed basis; they take all the risk.
• A contractor has no job security; if the work runs out or they are not quite up to scratch they can be out of a job much quicker than a permanent employee would be.
• If they have a gap between contracts (which will inevitably happen for genuine contractors) then they don’t get paid.
• They don’t get any company benefits; no pension, no gym, nothing. If they want anything, they have to pay for it themselves.
• No sickness or holiday; if you don’t work, you don’t get paid. This is a big one. A permanent salary covers the fact that you will have xx days’ holiday per year, including the statutory ones. Someone who is self employed does not get paid statutory holiday, or any holiday. The extended Christmas break is very expensive for them. If they were to get ill, they don’t get paid. Allowances for this have to be made out of their daily rate.
• There are no employee protections; by definition you have to be an employee to be protected by employment laws.
• They are financially liable; if something goes wrong their company will be held liable for any loss incurred.
• They have to pay for all of their own skills development; no personal development plans or paid-for courses for them. Within IT this can be particularly expensive because of ever changing technologies.
• No Christmas party; in fact attending company paid social events is one of the red flags for HMRC when deciding if you are falsely self-employed or not. Bah Humbug.
Whilst I am all for everyone paying their fair share of tax, contractors and permanent employees are not the same and to tax them in the same way would be grossly unfair.


I appreciate that it’s hard to create a definition of when someone is falsely self-employed and when they’re not. Creating a one-size fits all criteria will always be problematic so it looks as if the government is going to focus on time. This is what it’s believed the legislation will be changed to;
“Contractors will be able to work for one or two months before the client (or it could be the intermediary) must decide whether or not they are inside IR35. The test to be used to decide this will be based on the presence of supervision, direction or control (much in the same way as the “onshore” legislation). The only carve out from this will be if the contractor is working for more than one client at a time. There will be a debt transfer provision, so that unpaid taxes can be recovered from other parties in the supply chain.”


The recruitment industry bodies APSCo and REC, the Freelancer and Contractor Services Association, and many institutions are strongly opposed to these measures. If some form of cap has to be put in place, 2 months seems a very short period, especially given that the majority of contracts within IT are for 6 months. We don’t yet know exactly what the impact on the contract industry will be until we know for sure what the legislative changes are. With umbrella company contractors being targeted over their travel and subsistence claims and now limited company contractors being targeted as well, will less people be willing to contract? Is HMRC pushing for everyone to be a permanent, PAYE, employee?? We should know more on or before the 25th November when the autumn statement is released so watch this space.


Victoria Watkins is Office Manager here at Corriculo Ltd. After working as a Recruitment Consultant for 5 years she moved to Office Management for an IT consultancy 7 years ago. Victoria was one of the first members of our team and deals with all of our administration and accounts. Connect with her on LinkedIn, Twitter or Google+