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Contractor sector sceptical of potential tax cuts from an under pressure Boris Johnson

Contractors being potentially among the one in three adults who can afford basics but not always luxuries isn’t making the contractor sector into Boris Johnson’s whispered tax cuts.

Reportedly recommended to the prime minister as a way to heal rifts after he narrowly survived a confidence vote, any tax cuts would usually be embraced by contractors.

After all, contractors are “up against IR35 reform, dividend tax rises and [potentially] an incoming hike to corporation tax,” Qdos’s Nicole Slowey pointed out yesterday.

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‘Token gesture’
But another specialist in contractor taxation, Graham Webber of WTT Consulting, says he expects any tax cut from Mr Johnson to be only a “token gesture”.

The PM’s trying political circumstances, plus the government’s tendency to legislate against contractors rather than incentivise it via tax cuts, makes his expectation creditable.

But in a thread featuring both the tax specialists, a Test Analyst said that if any of the tax cuts resemble Spring Statement’s 5p cut in fuel duty, the government can “keep it.”

‘Forced bribe’
“At this stage [from Mr Johnson], it would be a forced bribe,” said the analyst, a self-employed contractor. “It would only be announced to make Boris look better, not to help us”.

The prospect of tax cuts has prompted Mr Johnson’s most supportive national newspaper, the Daily Telegraph, to identify a fuel duty reduction as the most important of five he may make.

The right-leaning broadsheet said a close second would be for the PM to abolish the 5% VAT charge on heating fuels — as Mr Johnson has previously promised to do.

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‘Attacks on contractors’
Yet a consultant posted yesterday that it’s not ever Number 10’s decision to cut taxes – it’s Number 11’s.

“[Chancellor] Rishi [Sunak] and the Treasury are in charge of taxes, not Boris,” the consultant said.

“[Following the many] broken promises and attacks on contractors over the last few years, it will take a lot [for either Mr Sunak or Mr Johnson] to win back support — and trust.”

‘Government handling taxation badly’
A YouGov reading of June 2nd shows 69% of adults believe the government to be handling of the issue of taxation “badly.”

Income tax is the levy which people would least like to be increased by the government, followed by council tax, and then National Insurance, the pollster found in May.

Speaking since the findings, Keith Gordon QC has pinpointed what he would most like to see in relation to the contractor sector’s most notorious tax rule.

In a phone-in with LBC about the off-payroll rules, the tax barrister said: “I hope someone will go back to the drawing board and decide IR35 is not fit for purpose.”

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‘Unwelcome letters from HMRC’
A revoking of the Intermediaries legislation is even more of an outside bet than tax cuts from the prime minister, so accountants say it’s ‘business as usual’ this tax return season.

“With tax returns on the mind of many pro-active taxpayers, something often forgotten on the tax returns of those submitting early, is benefits-in-kind,” advises Adam Dove, senior client accountant at Orange Genie.

“With P11Ds not due for submission until July 6th 2022, it is important to ensure your employer has submitted your P11D and you have the details before you complete your self-assessment tax return, to avoid any unwelcome letters from HMRC with amendments, interest and, or, penalties.”

By Simon Moore

Source: Contractor UK

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IR35 reform ‘stifling’ access to talent

The recent reform of IR35 legislation is “stifling” access to specialised talent in the UK, according to research.

Some 50 per cent of companies said IR35 was the main obstacle to hiring contractors in the past 12 months.

This has led to 70 per cent of businesses and recruiters seeing a reduction in their limited company contractor workforce, according to a survey of 1,200 contractors, recruitment businesses and end clients in February this year by Kingsbridge Contractor Insurance.

The same percentage of contractors will now only look for roles that are outside IR35 rules over the next six to 12 months, despite these accounting for 41 per cent of roles on offer.

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Two thirds (66 per cent) of contractors said they would not even consider a role inside IR35 rules.

Paul Havenhand, chief executive of Kingsbridge Contractor Insurance, said the UK economy is “being hampered” by a severe recruitment crisis.

“Contractors, as a highly skilled, flexible resource, could be providing a much-needed interim solution to keep things working and avoid major disruption to UK businesses,” he said.

“But there has been a 11 per cent drop in working contractors in the last twelve months.

“The complexities of IR35 and perceived risks are putting businesses off.”

The research was conducted for Kingsbridge, as part of a whitepaper called ‘IR-35 – One Year On’.

The white paper said half of recruiters surveyed feel that end clients were not prepared for the reform in the private sector, which Kingsbridge said suggests that “further education” is required.

Furthermore, it said HMRC’s Employment Status for Tax tool (Cest) is ‘not fit for purpose’ and is ‘hampering business growth’ by blocking access to contract labour.

“Recruitment agencies who reported that their end clients use Cest have seen a larger reduction of limited company contractors engaging in providing services compared to independent employment status tool users,” it said.

This was based on 38 per cent of the recruiters surveyed who said their end clients who use Cest have seen a 61 per cent or greater reduction in their contractor pool, compared with 23 per cent who use independent employment status tools.

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One criticism of the tool was that it produces indeterminate results 21 per cent of the time.

An HMRC spokesperson said: “HMRC will stand by Cest’s results provided accurate and correct information is used, in accordance with our guidance. The tool was rigorously tested against case law and settled cases by officials and external experts.”

Legislative reform

IR35 is a tax law that was reformed in April last year to require the end client, and not the contractors they hire, to decide if the working relationship resembles a self-employed engagement or employment. As part of this reform, the fee-paying party (either the end client or recruitment agency) now shoulders the liability.

The aim of the reform was to stop the promotion and misselling of disguised remuneration schemes, however the legislation has received criticism.

In April last year, the All-Party Parliamentary Loan Charge Group said the government needs to accept the “obvious reality” that IR35 legislation is “fundamentally flawed”.

The group said while it understood and supported the aim of stopping employees from seeking tax advantages for falsely claiming to be self-employed, the IR35 rules had “ironically muddied the waters and unintentionally made it harder, not easier, to define contracting and freelancing”.

An HMRC spokesperson said: “The off-payroll working rules ensure that individuals working like employees, but through their own limited company, are taxed like employees.

“The changes that took effect last year ensure that rules which have been in place since 2000 are applied correctly. We consulted extensively on off-payroll working and are continuing to deliver an extensive education and support programme to help industry and contractors implement the reform.”

“How an organisation decides to engage its workers remains a business decision for organisations to make.”

By Sally Hickey

Source: FT Adviser

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IR35 ‘biggest threat’ to contracting sector

Contractors most concerned about impact of IR35 reform in 2022

Despite confidence in the economy returning since the easing of Covid restrictions, IR35 reform, which came into force in April last year, remains the stand-out concern for contractors.

A survey of more than 1,200 contractors by insurance firm Qdos found that three in five (61%) see IR35 as the “biggest threat” to working this way in 2022.

This is more than ten times the number of contractors who see Covid (6%) or Brexit (6%) as the biggest concern. The incoming increase to dividend tax was earmarked as the second biggest difficulty for this sector.

According to research by IPSE, the freelance sector contributes £303bn to the economy annually. However, changes to IR35 – which have seen the responsibility for determining tax status shift from the contractor to the business engaging them –were found to have a big impact on contractors’ income.

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Reform driving people out of contracting

IPSE’s survey, which echoes Qdos’ findings, revealed that seven in 10 (70.9%) independent workers believe IR35 to be the most “detrimental” factor on their financial wellbeing. 

Andy Chamberlain, head of policy at the self-employment trade body, said: “While newspapers and news programmes are filled with analysis on the pandemic, inflation and the planned rise in National Insurance, today’s research shows that there is one forgotten crisis that has been even more economically damaging to many of those who work for themselves: IR35. 

“The changes to IR35 last year have had a devastating impact, with thousands leaving contract work altogether.”

In fact, a study published by IPSE showed that the number of solo self-employed people in the UK fell by five per cent in 2021 – the figure now stands at 4.1 million compared to 4.3 million in 2020.

Chamberlain added: “While it is positive to see research today on IR35, there needs to be more attention from the press and by the government to solve the issues around the flawed reform. 

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IR35 creates ‘plethora of challenges’ for contractors

“Put simply, without media and industry pressure and a governmental review, the changes to IR35 will continue to burden the whole supply chain – making it increasingly difficult for freelancers to make a living and for UK companies to source the flexible expertise they need to get projects done.”

Seb Maley, CEO at Qdos, said that while some businesses are starting to take a more “fair and pragmatic” approach, IR35 reform has still created a “plethora of challenges” for contractors, which is “jeopardising this way of working.”

“The fact that contractors still see IR35 as the stand-out threat in 2022 – and by some distance – tells you everything you need to know about the journey ahead, along with the progress that needs to be made this year.

“[…] Far too many businesses are insisting that contractors work on the payroll, regardless of their true IR35 status. Not only will this see businesses struggle to attract the flexible talent they need to recover from the pandemic, but forcing genuinely self-employed people onto the payroll will also result in significant and needless cost rises.”

What does this mean for contractors?

Omicron uncertainty and the challenges brought on by IR35 have made life difficult for contractors already this year. And until the government step in or businesses get to grips with the reform, the issues around IR35 could continue for some time.

With this in mind, it’s vital that contractors carry out their own diligence regarding IR35 compliance. And given HMRC can launch investigations retrospectively – to when contractors held the liability – independent workers are advised to hold IR35 defence insurance, which helps mitigate the risks presented by this complex and controversial legislation.

Source: Contractor Weekly

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IR35 is the biggest threat to the contractor working model, survey finds

The majority of contractors see the UK’s IR35 changes to the way employment status is judged as the biggest threat to their business in 2022, according to recent research.

A survey of more than 1,200 contractors by IR35 insurance provider Qdos shows that 61 per cent see the rule changes as the “biggest threat” to the contracting business model, which is said to be worth more than £300bn annually to the economy, according to the IPSE, the contractors, consultants and interims association.

Qdos found this was more than 10 times the number of contractors most concerned about the impact of coronavirus (6 per cent) or Brexit (6 per cent). Incoming dividend tax increases (18 per cent) were earmarked as the second biggest threat, although only a third of folk surveyed were concerned about those changes.

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The introduction of IR35 reform to the private sector on 6 April 2021 saw the responsibility for assessing IR35 status shift from the contractor to the medium or large business engaging them. As part of this reform, which mirrors changes introduced in the public sector in 2017, the liability also shifted, from the contractor to the fee-paying party in the supply chain (either the recruitment agency or client).

Qdos CEO Seb Maley said: “IR35 reform has created a plethora of challenges for contractors, jeopardising this way of working for thousands. The fact that contractors still see IR35 as the stand-out threat in 2022 – and by some distance – tells you everything you need to know about the journey ahead, along with the progress that needs to be made this year.

“Not only will this see businesses struggle to attract the flexible talent they need to recover from the pandemic, but forcing genuinely self-employed people onto the payroll will also result in significant and needless cost rises.”

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Qdos’s research found that 39 per cent were “confident” about their prospects for 2022. However, 37 per cent were either “concerned” or “very concerned.” There was an 83 per cent rise in contractors deemed outside IR35 by their clients from April to November 2021.

Even the government’s own departments are having trouble with IR35. In December it was revealed that guidance from Her Majesty’s Revenue & Customs’ employment checker tool had led to wrong calls on the tax status of freelance workers, costing £120m across two Whitehall departments.

Financial reports from the Ministry of Justice and the Department for Environment, Food and Rural Affairs show they face combined additional tax bills of at least £121m due to incorrectly determining the status of their contractors, despite following HMRC’s “accompanying guidance” and using HMRC’s Check Employment Status for Tax (CEST) tool.

IPSE research from October 2021 found 35 per cent of contractors in the UK had become permanent employees, retired, shifted to work overseas or are “simply not working” since IR35 tax legislation was revised in April 2021.

By Lindsay Clark

Source: The Register

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Does taking an inside IR35 contract affect future mortgage applications?

‘Does taking an inside IR35 contract affect future mortgage applications?’ is a relevant topical question, and I understand the catalyst for it. It comes at a time when Halifax has clarified its lending criteria for all types of employees, writes John Yerou, CEO of Freelancer Financials.

As there is no mention of IR35 in Halifax’s new lending criteria, it’s right to question the legislation’s bearing on future mortgage applications. But there’s a reason IR35 isn’t mentioned, and, when you think about it logically, you’ll get the gist, too.

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Using Halifax as the yardstick by which to measure other lenders

For the purposes of answering this question, I’m going to use the new Halifax terms as the fallback position. That’s because, time and again, Halifax has led the way in contractor mortgages.

Their new criteria show just how open they remain to independent freelance and contract professionals, despite all the new risk factors lenders are facing in the wake of the ongoing covid-19 pandemic. I also think that it won’t be long before more contractor-friendly mortgage lenders follow a similar path to the Halifax’s.

The caveat against which all this advice is given

Before I go on, let’s emphasise something key. There is no overarching law that tells banks and building societies how to deal with self-employed applicants. At any given time, any number of lenders might provide the best option for you, whether you’re inside IR35 or not.

So there is no ‘x + y = z formula’ we can apply across the board. Deals change daily. Some lenders are more amenable to time taken off between contracts, or will offer a higher ‘income multiplier’ than others.

Yet others may provide a specific product, maybe an offset mortgage, that might suit your situation best. You’re always, without exception, best off calling a contractor-specialist mortgage broker before approaching a lender direct yourself.

Treating contractors as employees

What’s clear from Halifax’s updated lending criteria is that once a contractor reaches a certain point in their contracting career, the lender will (in effect) treat them as an employee on PAYE.

The basic conditions a contractor must meet to secure this treatment, are that they must:

  • either earn £500 per day/£75k-per-annum or be an IT Contractor (any income);
  • have racked up >12 months continuous employment, plus have >six months remaining on their current contract, or
  • at time of application, have two years’ continuous service in the same line of work

Additionally, if the client or umbrella company for whom the contractor works pays their tax, Halifax will treat them as an employee.

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How does this help answer how IR35 affects mortgage applications?

Think about this dynamic from a role reversal aspect. When a mortgage adviser asks a PAYE employee what their income is, the employee doesn’t give them their amount after tax. They give them their gross annual salary. Similarly, the adviser doesn’t go through payslips looking for deductions; they just want proof that the employee is consistently earning and banking what they claim.

It’s the same for contractors. Lenders annualise their gross day rate to work out an equivalent ‘salary’ for their affordability calculations. Once they’ve established that top line annual figure, and proved it with bank statements, that’s it. They won’t go into deductions.

Even if a contractor is working inside IR35, the difference between what an IR35-caught individual and a PAYE employee on the same rate would ‘take home’ is negligible.

IR35, against updated criteria, becomes a moot point, which is why we:

  1. jumped on ‘that’ LinkedIn rumour in the first place, and
  2. didn’t mention IR35 in our previous article for ContractorUK setting out Halifax’s lending criteria, as all it does is muddy the waters!

If you come up against a mortgage adviser or broker who asks you about your IR35 status as part of your home loan application process as a contractor, you now have an argument to combat their objections! If they persist, then you’re probably talking to a mortgage lender that’s not perhaps as contractor-friendly as they claim. In short, do yourself a favour and talk to us instead!

The answer you’ve been searching for all this time…

If you’ve skipped to the bottom of this article in the hope of quickly finding out the answer to the question — ‘Does taking an inside IR35 contract affect future mortgage applications?, here’s the answer you’re looking for:

Answer: No. IR35 only affects the way you’re taxed. For mortgage purposes, you will be assessed the same way as before, depending on whether you operate through a limited company or an umbrella company.

Written by John Yerou

Source: Contractor UK

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Number of outside IR35 contracts surges since IR35 reforms

The number of contractors in the UK who have worked outside IR35 following the roll out of reform in the private sector this year has surged by 83% since 6 April 2021, according to research by Qdos.

Qdos’ annual contractor survey, which 1,248 contractors participated in, shows that nearly two thirds (64%) of contractors have been able to secure a contract deemed outside of IR35 since reform.

This is an 82.8% increase on the contractors (35%) who had been placed outside IR35 by their end client in the lead up to and upon the arrival of the changes.

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Despite the increase, contractors said securing an outside IR35 role hasn’t been straightforward. Less than a quarter, or 22%, said it has been easy, 40% have not noticed any change in difficulty since 6 April, while 38% said there is now a scarcity of contracts classed outside IR35.

Due to this, IR35 reform was highlighted by 72% of contractors as the event that impacted them most in 2021, behind Covid-19 (20%). Meanwhile, 61% still see IR35 reform as the biggest threat to this way of working in 2022.

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Qdos CEO, Seb Maley, said, “The surge in contractors able to secure contracts outside IR35 since April will give many of these workers a boost heading into the new year. That the number of contractors being placed outside IR35 has nearly doubled is the first real indicator that more businesses are managing reform in a pragmatic way. It also shows that fewer firms are forcing everyone onto the payroll – a needless and expensive approach in more ways than one.”

“There is still plenty of room for improvement, though. Outside IR35 contracts are on the up, but even so, lots of contractors are still struggling to source these. IR35 itself has also been earmarked by contractors as the biggest threat to this way of working next year,” Maley said. “In 2022, businesses that have banned contractors in response to reform should reverse these costly decisions, taking note of the rising number of firms benefiting from engaging them compliantly outside IR35.”

Source: SIA

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Contractor rates rocket since IR35 reforms

Almost nine in 10 businesses have been forced to increase rates of pay for contractors since IR35 rules were extended to the private sector in April.

A poll by Brookson Legal found that three-quarters have had to increase rates by more than 10%, more than double the average annual wage growth of 4.9% reported by the Office for National Statistics between July and September this year.

The reforms, which were introduced for public sector employers in 2017 and introduced this year to the private sector after being delayed by the pandemic, push the responsibility for determining a contractor’s employment and tax status onto the business rather than the individual.

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At the same time, businesses are facing huge talent shortages and need access to flexible skills, particularly in areas such as haulage and logistics, where IR35 rules have been cited as one of the reasons behind the HGV driver shortage.

More than three-quarters of employers are now finding hiring flexible workers to be challenging or very challenging, according to Brookson. Despite this, 90% plan to extend their use of contractors over the next 18 months.

However, while around a third (31%) are concerned about unforeseen tax bills if they use contractors who appear to be outside IR35 but are then found by HM Revenue & Customs to be inside the regulations (and therefore liable for higher tax and national insurance), more are worried about costs and their ability to attract talent.

More than half (53%) cited contractor costs as driving their business behaviour over IR35, and 42% cited talent attraction. Forty-two percent also felt project delays had driven choices over whether to hire contractors.

Within businesses, the CEO takes responsibility for decisions on contractor recruitment in 56%, and the board in 24%. In others it is delegated to other departments.

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Matt Fryer, head of legal services at Brookson Legal, said access to a talented flexible workforce was “vital to growth”.

“With job vacancies reaching an all-time high, presenting an attractive, compliant and competitive IR35 offer to talent is the best way to regain some control in an uncertain environment.
“It is also crucial to unlocking the benefits of a truly flexible workforce in the longer term. A robust and evolving IR35 solution will not only help companies recover and grow in the wake of the pandemic, it will ensure they are more agile and able to scale their workforce up and down to meet project needs.”

More than half (51.4%) of those polled by Brookson relied on the government’s Check Employment Status for Tax (CEST) tool to make status determinations, despite criticism that the tool delivers inaccurate status information.

Just over a third asked contractors to assess their own status, while 32.4% delegated the decision to recruitment agencies.

But Fryer warned that these approaches could be laden with risk. He added: “These approaches carry both the risk of tax liabilities from HMRC and can create barriers to growth if not used correctly, which will likely increase the cost of resourcing even further.”

Last week, a survey of 3,750 contractors by compliance platform IR35 Shield found that 47% of contractors had worked with companies where the use of contractors had been banned since the reforms were introduced.

A third felt IR35 reform would cause long-term damage to organisations, with many cancelling projects as a result.

By Jo Faragher

Source: Personnel Today

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Over a third of contractors have left self-employment since IR35 changes

More than a third, or 35% of contractors in the UK have left self-employment since the changes to IR35, either moving into permanent employment, retiring, working overseas or simply not working, according to research from The Association of Independent Professionals and the Self-Employed (IPSE).

The research also found that of those who remain, 34% are now working through “unregulated” umbrella companies and 36% are working through engagements deemed ‘inside IR35’.

Meanwhile 80% of contractors working inside IR35 said they had seen a drop in their quarterly earnings, by an average of 30%. A quarter said their income had dropped by over 40%.

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According to IPSE, a significant problem seems to be the implementation of the rule changes by clients. Under the new rules, clients are now required to give contractors a Status Determination Statement (SDS) to confirm their IR35 status, but nearly two out of five (38%) said their clients had not done this.

One in five (21%) contractors said their clients had also blanket assessed all engagements as inside IR35, while one in ten (11%) said their clients had blanket banned contractors altogether. Another 34% said they were now having to work through “unregulated” umbrella companies for their clients.

Nearly a quarter (23%) of all contractors working through umbrella companies say they are dissatisfied with their umbrella company, compared to 46% who are satisfied.

One key area of concern is business expenses, which most contractors now cannot claim from their umbrella company: 55% were dissatisfied with this. Another key concern is the cost of Employer’s National Insurance: 33% said they were dissatisfied with this.

HMRC introduced IR35 reform to the private sector in April 2021 in the expectation that compliance will become easier to police, that end-users will take a more compliant approach to IR35 assessments and that they will be more likely to conclude that contractors are in scope, resulting in increased tax and national insurance contributions.

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Andy Chamberlain, Director of Policy at IPSE said, “We are urging government to review the situation in the contracting sector and be open to radical steps based on that, including, if necessary, repealing the changes altogether. Government must also urgently set out detailed regulations for how umbrella companies should operate and also work to clear the confusion across self-employment by clarifying when it is right for people to operate as sole traders, employees or limited companies.”

Dave Chaplin, CEO of IR35 Shield said, “Whilst freelancers have succumbed to the triple whammy from the pressures of Brexit, the pandemic and the latest incarnation of IR35, our experience suggests this is a bottoming out of the market, and that it is starting to grow again.

“Many firms choose what they may have considered the easy option, by attempting to remain cost neutral and risk free by pushing a blanket ban on contractors from operating via PSCs (personal service companies). But some have since realised this has put them at a disadvantage in the competing market for talent compared to firms who have implemented processes enabling them to continue to hire contractors on an ‘outside IR35’ basis,” Chaplin said.

Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance said, “My message to workers is that if they are offered something that is too good to be true then it is probably a disguised remuneration scheme that will set them up for financial difficulties in the future. HMRC already holds all the information it needs to stamp out disguised remuneration schemes and rid the industry of criminal activity but is not acting on it. As a result, the lack of inactivity has enabled more and more schemes to set up and more and more contractors duped into taking on significant personal financial risk as a result.”

Earlier this year the Department for Business, Energy and Industrial Strategy published its consultation report which confirmed that the new enforcement body will also regulate umbrella companies.

Source: SIA

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IR35 changes driving contractors out of self-employment

More than a third (35 per cent) of contractors have left self-employment since the changes to IR35, either moving into permanent employment, retiring, working overseas or simply not working.

According to the Association of Independent Professionals and the Self-Employed (IPSE), of those who remain, more than a third (34 per cent) are now working through unregulated umbrella companies and another third (36 per cent) are working through engagements deemed ‘inside IR35’.

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What is IR35?
IR35 or the off-payroll working rules can apply if a worker or contractor provides their services through their own limited company or another type of intermediary to the client, but who would be an employee if the intermediary was not used.

Self-employed contractors typically work under this kind of arrangement to reduce the tax they pay. Such workers are called ‘deemed employees’ by HMRC.

The IR35 rules aim to make sure that a worker, who would have been an employee if they were providing their services directly to the client, pays broadly the same tax and national insurance contributions as an employee.

In the past the contractor decided whether their working arrangements fell inside or outside IR35. But since April 2021, their employment status has been determined by the client. If the client decides that IR35 should apply to the engagement, payment to the contractor will be taxed at source.

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Financial consequences
IPSE says that working inside IR35 not only leaves contractors essentially in no-rights employment; it also has significant financial consequences. Four out of five (80 per cent) contractors working inside IR35 said they had seen a drop in their quarterly earnings – by an average of 30 per cent. A quarter even said their income had dropped by more than 40 per cent.

A significant problem seems to be the implementation of the rule changes by clients. Under the new rules, clients are now required to give contractors a Status Determination Statement (SDS) to confirm their IR35 status, but nearly two out of five (38 per cent) said their clients had not done this.

One in five (21 per cent) contractors said their clients had also blanket assessed all engagements as inside IR35, while one in 10 (11 per cent) said their clients had blanket banned contractors altogether. Another 34 per cent said they were now having to work through unregulated umbrella companies for their clients.

One in four (23 per cent) of all contractors working through umbrella companies say they are dissatisfied with their umbrella company, compared to 46 per cent who are satisfied.

One key area of concern is business expenses, which most contractors now cannot claim from their umbrella company: 55 per cent were dissatisfied with this. Another key concern is the cost of employer’s National Insurance: 33 per cent said they were dissatisfied with this – most likely because many umbrella companies are passing this cost onto contractors through a deduction from their day rate.

‘Devastating impact’
Andy Chamberlain, director of policy at IPSE, said: “Contractors are the most productive part of the crucial self-employed sector, which overall contributes more than £300bn to the UK economy every year. Not only that: they are absolutely vital for economic recovery, providing invaluable flexible skills to businesses getting back on their feet and adapting. But just when this sector is needed most, it has been hamstrung by the changes to IR35.

“This research shows the devastating impact the changes to IR35 have had on contractors, needlessly compounding the financial damage of the pandemic and the unnecessary gaps in support. Now, just when contractors are needed most – amid mounting labour shortages across the UK and particularly in haulage – government decisions have driven out a third of the sector.

“Contractors now find themselves with myriad different and complex ways of working – each with its own pitfalls. They are now divided between those still managing to work outside IR35, those working through unregulated – and sometimes unscrupulous – umbrella companies, those working inside IR35 for less pay and with no rights, and others now on client or agency payrolls.”

By Emma Lunn

Source: Mortgage Solutions

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HGV crisis: why IR35 tax changes made driver shortages worse

It’s no secret that the UK is short of HGV drivers. But while a combination of Brexit and Covid-19 have exacerbated the issue, there’s another reason behind it: IR35 tax changes.

However, IR35 doesn’t just affect lorry drivers, it affects contractors throughout the UK. Here’s what it is, what it means for all ‘off-payroll’ employees and why it’s made a precarious situation even worse.

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What is IR35?

IR35 is basically a set of tax rules.

The rules aim to weed out what’s called ‘disguised employment’. This happens when someone works as a contractor (for instance, through their own limited company) but fulfils the role as any other permanent employee hired by the company would.

Disguised employment often happens because of the tax benefits it brings.

For employers, it means avoiding National Insurance (NI) contributions. It also means employers don’t have to provide regular staff benefits (like pension contributions).

There are benefits for the contractor too. Limited companies are ‘tax efficient’ partly because you take home less pay (and therefore pay less tax). You can then bulk out your income through dividends which are exempt from National Insurance.  

The government hopes that IR35 stamps out these practices in order to raise more revenue through otherwise ‘lost’ taxes.

How does IR35 work?

To distinguish between disguised employment and genuine self-employment, there are two types of status within IR35.

1. Inside IR35

This is where you’re considered an employee. For example, you use equipment provided by the company you’re contracted to. It’s also recognised as working on a rolling contract basis rather than completing one-off projects for a range of clients.  

If you’re considered to be working inside IR35, you and the company you contract for are subject to all the usual taxes, such as Income Tax and National Insurance.

Outside IR35

This is considered genuine self-employment. This is broadly accepted as being in control of where and when you work, and usually for more than one client at a time.

It can also mean using your own tools and equipment in order to complete the work.  

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So, how does IR35 affect HGV drivers?

IR35 affects HGV drivers for a couple of reasons.

The first, is that many are (or were) employed by agencies as freelancers or contractors. But, these drivers would use agency lorries and be given specific work schedules.

This means the drivers fall inside IR35 rules and (technically) work for their agencies as they have no control over their schedules and aren’t driving their own lorries.

As it stands, these agencies work to tiny margins (around 2% to 3%). Some agencies have started to employ drivers inside IR35 and provide all the workplace benefits that go with it. For others, it’s become an unsustainable business model.

Secondly, for drivers, it means losing the flexibility of contract work and being forced into employment terms they may not be happy with (including less take-home pay).

Research by the Association of Independent Professionals and the Self-Employed (IPSE) seems to support this. In its study, IPSE found that only 17% of contract drivers would actually choose to seek an employed role.

Half of contractors planned to stop working in the UK while 24% said they would try and find work in another sector.

A reasonably large minority (12%) said they would stop working completely and 11% planned to retire instead.

Not only that, the ins and outs of IR35 are complex and often subject to interpretation. This has made many agencies and firms worry about getting it wrong and facing penalties as it’s down to them to work out whether someone is working inside or outside the new rules.

All in all, IR35 is part of a bigger and more complicated picture. Yet there are few doubts that it’s contributed to the HGV crisis that shows little sign of getting better anytime soon.

By Anne East

Source: The Motley Fool

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