As widely discussed HMRC is in the process of consulting the plans to roll out IR35 off payroll legislation to the private sector in the not too distance future. This follows the controversial IR35 changes made in the public sector in April 2017. The proposed changes will mean that instead of contractors analysing their own IR35 status, the employer will make the assessment for them. In order to mitigate risk the safest approach may well be for employers to blanket assess their contractors as inside IR35 as has already been seen in the public sector.
The Association of Independent Professionals and the Self Employed (IPSE) have stated that the ‘anti-business’ changes could have a damaging effect on contractor living standards and could result in losses of an average of £14,000 per year for some contractors. This figure is calculated using the average day rate of £430 and the average weeks worked 42 according to the IPSE Freelancer Confidence Index.
Their figures suggest that the outside IR35 contractor would be subject to Corporation Tax and Dividend Income Tax of £26,768.16. However, an inside IR35 contractor would have to pay a total of £29,486.12 in Income Tax and Employee’s National Insurance Contributions.
On the face of it the difference does not look that significant but there would additionally be employer taxes such as Employer’s National Insurance Contributions and Apprenticeship Levy which would need to be taken into consideration. The IPSE sum total is calculated to stand at an average of £14,000 between being assessed inside and outside of IR35.
If the proposed changes come to fruition then it is likely that many of those suddenly deemed inside IR35 will need to use Umbrella Company solutions. We have already seen many affected contractors from the public sector changes turn towards dodgy umbrella schemes promising high take home pay rates to try to and claw back their losses. However this has proved to be a massive mistake with huge HMRC liabilities being racked up and new retrospective loan scheme legislation looming on the horizon. It is more important than ever before that contractors choose a reputable and compliant umbrella partner to steer them through this uncertain and turbulent legislative period.
Source: ipse(https://www.ipse.co.uk/our/news-listing/ir35-changes-could-strangle-living-standards-.html) 28th June 2018 – IR35 changes could strangle the living standards of the self-employed