IR35 bites IT contractors again
Moves to treat contractors as staffers will hit IT hard
Moves to treat contractors as staffers is predicted to hit IT hard.
TAX CHANGES DUE to come into effect in April 2020 could push IT contractors out of business due to increased costs and uncertainty.
Despite concerted criticism from many within the IT contracting industry, the government had decided to push ahead with plans to introduce IR35 in the private sector next April as part of its Finance Bill.
The unpopular IR35, which previously only applied to the public sector, allows HMRC to tax sole traders as if they were employees, if it deems their working arrangements to be akin to regular staff.
According to self-employed IT workers, the changes could force them out of businesses or to seek other work arrangements, because it effectively reduces earnings and ignores the fact that contractors don’t receive benefits such as paid leave and training.
“I’ll be paying more tax than an employee, but still having to contend with all the negatives surrounding the precarious nature of contracting, like non-earning periods due to no work or illness, and short notice termination of the contract,” said James Warrington, who specialises in Excel and Access contract jobs. “It took me six weeks to start my current contract when my previous one came to an end. That’s six weeks of no money.”
Under IR35, contractors may also be limited to working locally due to the costs of travel and accommodation involved in working at a distant client’s site. “We can’t expense travel and subsistence if caught by IR35,” explained Warrington. “Using the IR35 calculator, it gives a take home amount of £57,000 based on a contract day rate of £450 a day and that’s based on 44 weeks worked per year,” Warrington said.
“While that sounds a lot, it equates to £259 per working day and when you factor in about £100 per night in a hotel for four nights and £150 a week on train fares, that £259 suddenly drops to £150 per day.
“That will have to pay for my salary, my training, holidays, periods of down time, periods off due to illness. So, it means only local contracts going forward.”
Under IR35, the burden of proof on whether workers fall within scope would, from April, be the responsibility of the hiring company, leading to further fears that many small companies lack the expertise to decide and will simply avoid individual contractors.
“Pressing ahead with IR35 changes in April with no regard for the other pressures facing businesses is a reckless move,” said Mike Cherry, national chairman of the Federation of Small Businesses, in a statement.
“Left unamended, this bill could easily usher in an environment where firms in need of expertise in the short-term steer clear of the self-employed community because they’re afraid of making an incorrect assessment.”
Industry experts also told PC Pro the changes would inevitably lead to both companies and contractors trying to keep contractors “off” IR35, which could have an impact on the way contracts and work schedules are drafted.
“People might get a bit more clever about how they take contracts… but some companies may have to pay more if contractors do fall into IR35,” said Chris Prentice, who runs contract employment website UK IT Careers. “We’re looking to create some compliance guidance for contractors before April to show people how they might legally stay outside of IR35.”