For those people who have been contracting IR35 is nothing new. IR35 was first introduced in 2000 by then chancellor Gordon Brown in an attempt to close the tax avoidance schemes that many contractors were encouraged to sign up for. This included certain "personal service companies" that employed various schemes to avoid paying NI and Income Tax.
Essentially the law allowed the HMRC to scrutinise individuals or small businesses that took advantage of such schemes, and where applicable could levy them any shortfall in Tax and NI that would otherwise be due if they were say employed by that company.
Personally I have always used an Umbrella company who essentially are also responsible for making sure that I am inside IR35 and not only pay Employers Ni but Employees too, as well of course as any Income Tax.
According to wikipedia:
Until April 2017, it was the responsibility of a contractor to determine their employment status (self-employed or employed) and associated tax payments. In the Chancellor's Autumn Statement in 2016, the government confirmed that it would reform what it calls the "Intermediary Legislation".
On 6 April 2017, a reform of the IR35 was introduced by HMRC in the public sector. It became the responsibility of the public authorities employing contractors to determine the contractor's employment status for tax purposes. The reform was introduced by HMRC to "ensure that individuals who work through their own company pay broadly equivalent taxes as employees, where they would be employed if they were taken on directly." An online tool (known as "CEST") was made available by HMRC to enable workers or employers to determine employment purposes for tax purposes.
HMRC estimated it raised an additional £550m in income tax and National Insurance Contributions in the first year following the introduction of the reform.
One consequence of this was a huge reduction in the number of contracts offered by the public sector to IT contractors and it has been reported that many larger companies such as IBM, Accenture and Capita, are already putting themselves forward to scoop up the body-shopping work left by the contractor exodus. This is likely to be repeated in the private sector when the new law come into affect in April 2020.
HMRC estimated the cost of non-compliance with the IR35 legislation in the private sector to be £1.2b annually by 2022/23. It announced the extension of the IR35 reform to medium and large companies in the private sector and charities, applicable from 6 April 2020.
If you thought you were IR35 compliant and that the changes would not affect you, think again. The change in legislation means that the entire public sector has changed its attitude to contracting as they are now the ones that are ultimately responsible for picking up any shortfall in income tax and NI should the role be deemed inside IR35. This is likely to affect those who may even still be paying tax as if they were in IR35, as they are likely to be tarred with the same as those other contractors who fall outside it. Furthermore, those who opted to switch to the private sector will from tax year starting April 2020, also be affected.
It looks like the banking & finance sector IR35 verdict is going to be awful for UK contractors and freelancers. Three banks and one finance company have now said that they will take on no more contractors from late this year.