IR35 Changes Impacting Contractors across all Industries

Despite the recent review by HMRC related to IR35 changes, the IR35 legislation will go into effect for private sector contractors beginning in April. The regulations will greatly impact contractors that manage IT for the banking, pharmaceutical, and utilities industries. Many private sector companies have announced plans to phase out contract workers, because the companies do not want to manage the burden of tax liability or determinations for their contractor staff.

HMRC has stated that the new tax legislation will force companies and contractors to pay their “fair share” of taxes, but the real burden lies with contractors employed with an intermediary that may struggle to find new work. Companies hire a large number of contract workers to manage their IT, but with those contractors leaving or being forced to change their employment status, companies are putting their IT operations at risk.

Another factor in the debate of the new IR35 change is the amount of tax this new regulation will actually raise. HMRC has stated that the legislation will provide £3 billion in new tax revenue, but companies and contractors are skeptical. HMRC claims that up to 30% of contract workers are misclassified as self-employed and should be paying the same tax as a company employee, but the burden that is being placed on contract workers is forcing many to leave their positions and possibly seek work outside of the UK.

As the new legislation rolls out in April, companies will have to ensure compliance with the new regulations and consider hiring their contractors as full time employees in order to retain the talent. If this happens, there can be a strain on the payroll and HR administration due to the volume of new workers. It is important to understand how your company will incorporate contract workers and if you need to make adjustments to your payroll process to accommodate the changes. If you need help understanding how the new IR35 rules will affect your payroll, our team is here to assist you. Our CIPP-certified staff can walk you through the process and help you ensure compliance. Click here to learn more