What Next for HMRC and the IT Contractor World?
Over the last year, the IR35 reform has barely been out of the headlines. We’ve seen the confusion from both IT contractors and the businesses they work with, and we’ve seen the ruling being praised by the Government. But now, the focus is shifting. There is less importance being placed on the history of IR35, and more interest in what we’ll see in the future. So what's next for HMRC and the self employed?
Private Sector Extension
The obvious starting point is, of course, the extension of IR35 into the private sector. Initially due to be implemented in April 2019, it was announced at the 2018 Budget that the plan had now been delayed until April 2020, giving businesses and contractors another 12 months to plan and prepare for change.
But what exactly will extending IR35 into the private sector mean for HMRC? In a nutshell: Money. The extension into the private sector was called the ‘biggest revenue raiser’ of the 2018 Budget. It is claimed that ‘disguised employees’ — those paying tax as contractors but working under employee terms and conditions — will cost the Government £1.3 billion by 2024. Through the extension, HMRC says that it hopes to raise more than £1 billion, and almost offset the costs of what it calls a ‘tax avoidance scheme’.
Potential for Future Change
As a proposed source of new income, could it be that more IR35 and tax-related changes will be introduced by HMRC to the self employed in the future? There are areas where it is certainly possible that this could happen, especially with a significant portion of the private sector currently exempt from the reform. It has been announced that small businesses will not be affected, but could they be next?
Jeanette Barrowcliffe of Meridian Business Support says that she is ‘astonished’ that small businesses are exempt. While the reasoning is clear — to prevent small businesses from having to endure the ‘burden’ of IR35 administration — the fact that there is an untapped source of income here cannot be denied.
The problem that we’re experiencing right now is simple: We don’t know what’s going to happen. Nothing is clear and until we know what’s next for HMRC and the IT contractor world, it's difficult to plan and prepare for change. Will there be even more delays to extension of IR35, while HMRC irons out the issues stemming from introduction to the public sector? Will small businesses eventually be absorbed into IR35 legislation? Will the crackdown on disguised employees be a successful fundraiser, or will new regulations be coming into effect in the future? At this time, it seems that anything could be possible.
What we can do, however, is familiarise ourselves with the information that is currently available. Our partners at Nixon Williams have created a handy guide to IR35 that tells you everything you need to know about paying tax as a self-employed IT contractor, either in the public or the private sector.