Since its introduction IR35 has been fraught with uncertainty and it has never produced the millions of extra tax revenue that the Government predicted. HMRC have very few officers working on IR35 cases and following numerous defeats before the Tax Tribunals the Government have decided that a different approach is needed.
From April 2018 where the end client is a public sector body, the status of the worker is no longer determined by the contractor but is decided by the public entity, with no right of appeal by the contractor. The payer (the public body or an agency if one is involved) is required to calculate and deduct PAYE and NIC where the public body determines that the contract is within IR35. HMRC’s employment status indicator tool has been widely criticised as inaccurate and sadly there is evidence that a least risk approach is being adopted and contracts are being classified within IR35 in order to protect the public body from any later claims by HMRC.
In the Autumn Budget the Chancellor announced plans to extend these measures to private sector engagers (except for some “small” engagers, not yet defined) from April 2020. At that point the decision whether the engagement falls within or outside of IR35 is taken away from the contractor, and consequently income tax and employee’s NIC may be deducted from the invoiced amounts before they are received. Before renewing existing contracts contractors may wish to discuss with the end client their views as to whether the contract falls within or outside of IR35.