The roll-out of IR35 to the private sector in April of last year was somewhat overshadowed in the mainstream media by a certain virus. However, as a leading IT recruiter, Be-IT was very aware of the number of issues thrown up by this enforced change. As IR35 ‘settled down,’ many companies chose not engage with Personal Service Companies, but others have become employers of choice, attracting the best-of-breed contractors over competitors who will not issue contracts outside IR35.
Moreover, although the idea behind introducing IR35 into the private sector may (possibly) have been understandable some private sector organisations have sought to absolve themselves from the pain of having to decide how their contractors should be taxed. They have done this by introducing hiring bans that prohibit the use of limited company contractors in favour of those employed through umbrella firms. And, surprise surprise, as a result the number of umbrella companies has increased, including ‘rogue’ ones that are effectively fronts for tax-avoidance schemes, offering ‘too good to be true’ take-home rates of pay by means of paying part of the contractor’s salary in a tax-free loan.
Consequently, the House of Lords’ Economic Affairs Finance Bill Sub-Committee is now asking the government to speed-up its commitment to rolling out statutory regulation for umbrella companies. Or, as the committee puts it, the surge in umbrella company usage risked “substituting one form of tax avoidance for another.” All this is happening because the IR35 reforms have shifted responsibility for determining how limited company contractors are taxed away from the individual and onto the end-hirer, based on the work the contractors actually do.
The idea that many medium-to-large private sector businesses would tweak their hiring polices ahead of the reforms in order to minimise any new, additional administrative burden seemingly didn’t occur to anyone…
Matt Druce, Client Delivery Director, Be-IT Projects