In a move that has sparked outrage among many contractors throughout the UK, it has been confirmed that HMRC are changing the way the IR35 is policed within the public sector.
This has been on the horizon for a few months now, with many experts predicting they wouldn’t actually go through with it. It seems like they were wrong though, with the new rule change expected to be enforced very shortly.
It was first announced during the 2016 budget by George Osborne, as he outlined his intention to clean up the public sector and catch out “contractors” who should really be classified as employees, and in turn pay more tax. However, many people are arguing that what will really happen is that innocent contractors will get wrongly and unfairly classified as employees, leading to them being taxed extra in the process.
A representative of HMRC by the name of Philip Horswill recently stated that 400 million pounds was lost last year due to around 90% of contractors in the public sector not paying the correct tax, although he defended the new IR35 rule changes, saying it was “not a tax grab.”
So what are we to make of all this? In my own personal opinion I can see both sides of the story. Yes there will be contractors who end up paying too much tax and lose a lot of the benefits they currently enjoy, while at the same time it goes a long way in helping to clean up the public sector and stop a lot of people cheating the system. Let’s face it, £400 million a year is no joke, and if this really is the kind of money that is being held back from HMRC then something needs to be done.
On a side note, there had been some reports that HMRC have been planning to roll out similar measures in the private sector over the next few months. However, Philip Horswill claimed this is not the case at all, and there are no plans in the future for more rule changes. I think this is the right move, as the public sector is quite a unique scenario in regards to IR35.
With all that being said, it’s expected that many contractors will challenge the decision once all the rule changes go ahead, with many experts predicting this may end up costing the HMRC a lot of time and money in contesting cases and appearing in court.
While this probably will end up being the case to some degree, there is no denying that HMRC needs to move forward in some capacity regarding the public sector and IR35. One thing we can all agree on…it’s certainly going to be interesting to see what happens.