The ITContractor.com IR35 poll result shows that a vast majority of UK contractors plan to dump their clients if the client issues a blanket ban on contractors who use personal service companies.
If this happens then the Government massive gamble that they would meekly accept the IR35 changes and stay at their current client companies will backfire.
Huge disruption will be caused to all the UK’s major companies. Those contractors leaving will take with them not only their skills and experience but also intimate, detailed knowledge of their clients’ businesses and computer systems.
The poll was of 373 contractors.
Contractors IR35 Question – which option will you take if your client company blanket bans contractors using personal service companies
80% – Leave and look for contracts elsewhere
8% – Take a Permanent Job Offer
8% – Join an Umbrella Company
4% – Go PAYE with your Agency
These are astonishing figures. One has to say that some of this may be wishful thinking. Some contractors may wish that hey could simply dump their clients and get a new contract quickly elsewhere. This may not be so easy though.
However, if the number of contractors leaving companies blanket banning PSCs comes anywhere close to this there will be massive disruption to British industry.
Indeed it could plunge the UK into a massive downturn just as they are hoping to boost the UK economy and add doctors and nurses to the NHS.
Implementing Brexit will be more difficult in an economy in recession. Indeed, as the mainstream media are not too aware of IR35 and the damage the changes may do, they are sure to blame any recession on Brexit itself.
If even a quarter of those 80% of contractors who say they will dump their clients actually do so that would cause massive disruption at all the UK’s major companies.
If it gets up above 30% then there could be massive disruptions to the computer systems being built at all our top companies. Many regulatory systems would not be finished in time.
Our major banks may not have their LIBOR de-commissioning projects finished on time before the cut over comes.
And all to bring in a tax that is worth less than a tenth of a penny on income tax to the Treasury.
So, what conclusions should the Government come to over our IR35 poll result?
We all know that the Government is not going to scrap the changes due in April 2020.
Although they said prior to the election that they would review the IR35 changes they are now saying the review is only to help them implement the changes better.
However, there are still two achievable objectives for contractors.
Firstly, just as they said that companies could not blanket assess contractors they should not allow blanket bans on personal service company contractors at companies.
It’s really unfair as many of the contractors who are having to take contracts that are inside IR35 would test outside IR35.
Secondly, the Check Employment Status for Tax IR35 test must become fit for purpose. It is far from that now. It is what HMRC want it to be.
HMRC, who have a conflict of interest, should recuse themselves from the re-development of this test.
It should be handed over to an independent body. It should also be updated to reflect court verdicts at employment tribunals.
There is one company currently telling their contractors that one of the three reasons they are failing all their contractors after sitting the test is that none of them had ever used a substitute.
In the Lime-IT Lisa Fernley case the judge specifically said that the onus was on HMRC to prove that a substitute would not have been used. The assumption must be that they would use one if needed.
HMRC could only prove that the contractor wouldn’t use a substitute if there was an opportunity to do so and they didn’t take it.
The burden of proof in law is always with the accuser. innocence is presumed unless it can be proved that someone is guilty. It is the same with civil cases. HMRC would have to prove that the contractor was in breach.
If the contractor has a substitution clause in his or her contract and never uses it, it must be assumed, in law, that he or she would if the opportunity came up.
However, it appears that this verdict has not been incorporated in HMRC’s IR35 tool.
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Many private sector contractors are likely to be told by their client company either that they must operate as an off-payroll employee or join an umbrella company. It’s time to plan for that now.
They need to look at umbrellas ASAP.
