News that many large employers are now refusing to engage limited company contractors in future is the inevitable consequence of the legislation scheduled to take effect in April 2020.
At a treasury roundtable meeting earlier this year, I put it to HMRC that the proposed legislation would effectively end limited company contracting and had that been HMRC’s intention, there were much simpler ways of accomplishing it. No one in the room disagreed, but HMRC made a point of promising this was not their intention. But it is about to happen anyway.
It was almost inevitable that given the minefield of responsibility placed on employers and agencies and the potential for disputes over ‘inside or outside’ status, most organisations would simply stop offering the option of being limited. There is no advantage to the employer or agency, as the cost associated with PAYE are paid direct to the limited company under the existing rules.
Limited company contractors who are inside IR35 now, if they are operating lawfully will be no worse off. Those that are genuinely outside IR35 can still be self-employed or contract as any other supplier. In the agency scenario, such individuals are very rare. HMRC are after, what they believe, are the many individuals who aren’t operating lawfully and are seeking to stop them.
Whether that is right or not is another question. My view is that contractors should have a more favourable tax regime, but the practice of using a limited company was ruined by the appearance of commercial tax avoidance business’s in the wake of the original IR35 legislation twenty years ago. They forced HMRC to look harder at the practice and it is those businesses and those who collaborated with them who are responsible for this.
Sadly, as more announcements are made along the lines of Barclays Bank and others, it looks like the time is up for Limited company contractors, as it was for self employed ones in the late 1980’s.
Those who are in the category being targeted by HMRC, that is people who are not genuinely outside IR35 but delivering accounts that say they are, will have to accept that a very questionable tax benefit is now ending and be pleased they got away from it for a long time. They should also be aware that thanks to the intermediaries reporting legislation, HMRC still have the power to look back over the past few years when they were ‘limited’. That being the case, this may be an occasion to accept the inevitable and not draw too much attention to oneself.