IR35 Factors, IR35 Compliance, are you caught?

Contractor Tax Protection
Tax Liability Cover (TLC35) and
IR35 insurance from Qdos Consulting

The real cost of IR35 to the contracting industry

Posted Jun 3, 2009

Last week the PCG revealed that the Treasury had raised just £1.5m per year following the introduction of IR35.

A pitiful return, given all the fanfare when the legislation was launched. The Government expected to raise an extra £220m in increased NICs alone.

However, these figures, which PCG obtained via a Freedom of Information Request, don't include the considerable cost that IR35 has had on the contracting industry.

Costs of those caught by IR35

The increased income tax and NICs collected from contractors deemed to have been caught by IR35 are at the heart of the recent PCG revelations. The real increased tax and NIC take could well be much higher - see 'Umbrella Companies' below.

Costs of complying with IR35

IT contractors have spent many millions over the past few years on extra products and services which have appeared as a result of IR35. These include IR35 insurance products, IR35 contract reviews, and other professional fees.

As Simon Sweetman points out in a recent AccountingWeb piece:

"Apart from the regular advice given to regular clients, there are firms out there that have built their entire fortunes on IR35."

Umbrella Companies

The figures don't include the additional tax and NICs collected from contractors who have joined umbrella companies as a result of the IR35 rules - these sums are likely to be considerable.

It is hard to work out how many contractors join umbrella companies for reasons of convenience, and how many do so because they believe their contracts are caught by IR35.

Poisoned Relationships

There is no doubt that the relationship between those affected in the contracting world, and HMRC, have been soured ever since the introduction of IR35.

As Simon Sweetman comments:

"The legislation was already written before consultation started and the only changes were to the advantage of big business. I hope we have all learned something since then."

Costs to the Taxpayer

Millions will have been spent creating the legislation, attempting to enforce it, and defending HMRC in a number of court cases - from the Judical Review of IR35 back in 2001, until the present day.

Personal Costs

Alongside costs which are easier to quantify, none of these points recognises the considerable stress IR35 has caused to many contractors - the uncertainty of whether their contracts are caught by the rules or not, and uncertainty over how to be 'compliant' with the legislation.

Not forgetting the thousands of contractors who have had to undergo IR35 tax investigations, or even ended up fighting a high profile court case - e.g. Dragonfly Consultancy Ltd.

Please scroll down for related articles

Contractor Services


Related Articles

Online IR35 test tool launched for contractors
Contractors can now access a free online employment status test which provides an IR35 status result in just ten minutes.

IR35 irony as HMRC's ex-IT boss becomes short term contractor
The Sunday Times has revealed that HMRC's IT chief left his permanent role in June 2009, only to return as a contractor via his own limited company for the following three months.

Concerns raised over Telegraph IR35 abolition comment
With speculation rife about the future of IR35, a leading accountancy site has raised doubts over a newspaper claim that the coalition has promised to "abolish" the legislation.

Contractors' group asks - is this the end of IR35?
PCG, the leading contractors' organisation, says that it welcomes "the clearest statement yet from the Coalition Government that IR35 is to be abolished."

IR35 and the Emergency Budget
In the Emergency Budget, George Osborne confirmed the coalition's pledge to review IR35 as part of a wider review of the way small businesses are taxed in general.

Should contractors curb their enthusiasm over the coalition's pledge to review IR35?
Given the news that the coalition plans to review IR35, could a simpler tax system actually be more restrictive to the self employed?

Analysis of the Novasoft IR35 tribunal victory
Analysis of the recent Novasoft Limited IR35 tribunal, in which a contractor beat HMRC against all odds.

Contracting industry reaction to IR35 review plans
The contracting industry has reacted with both joy and caution at the news that the new coalition government has announced its intention to review IR35.

New government confirms plans to review IR35 rules
The new coalition government has released a more comprehensive document outlining its programme for governing over the coming 5 years - including its approach to IR35.

Will the new coalition government abolish IR35 rules?
Many contractors will be wondering how the new coalition government will act on IR35 over the coming months and years.

Contractor successful at IR35 appeal after five year wait
IT contractor, Novak Brajkovic, has won his appeal against an IR35 claim, which was initially triggered via his use of HMRC's own contract enquiry service!

IR35 rules - a guide for IT contractors
A brief guide to the controversial IR35 tax rules, how it affects IT contractors, and how to be IR35 compliant.

Conservatives would review IR35 rules following election win
As part of their pledge to review small business taxation should they win the general election, the Tories have singled out reform of the IR35 rules as a priority.

IR35 factors and the importance of 'control'
A brief overview of how 'control' is an important factor in determining the IR35 status of a contract.

IR35 and the Right of Substitution
The Right of Substitution is an important factor in IR35 / employment status cases, but how can it be used in reality? Why a RoS clause is useless unless it reflects the reality of the contractor's working practices.

Qdosconsulting

Contractor Financials

ESSENTIAL IR35 GUIDES