Contractors used to be able to “fly under the radar” so to speak, but with an increasing number of individuals choosing the contractor route, the focus on them has increased. In 1999, HMRC and the Inland Revenue made a statement professing their dedication to changing the way contractors are taxed in order to limit the number of so-called “tax avoiders”.
The reality is that these weren’t avoiding tax but by choosing to operate through a limited company, achieved certain benefits that individuals who were simply employees did not.
Contractor Regulation – The IR35
The original purpose was to target those individuals who were essentially operating in the same way as a normal employee but with all the advantages of a company. This has been extended to apply to all contractors, with particular focus on those who work in IT. In 2000, the most recent IR35 legislation amendments were published by the government hoping to provide a more up-to-date regulation of contractor activities. This agreement confirmed implications from previous amendments that any contractor who signed a standard agency contract would fall under the umbrella of the IR35 legislation. If the contractor feels that they do not, the burden of proof lies with them not the government.
The IR35 has been condemned throughout the country with high-profile individuals regularly stating that the legislation is unreasonable. The lib-dems have recently requested a suspension of the rules stating that it does not serve the interests of the contractors in any capacity, saying they prefer “minimal and appropriate regulation”.
Future Changes?
Essentially, the government identified contractors as ‘tax avoiders’, due to the tax saving benefits they enjoy from working through a limited company, while performing roles similar in nature to those of permanent employees.
Although the Revenue claimed that the initial targets were ‘Friday to Monday’ workers (permanent employees who return the next week as contractors), it has since become clear that IR35 was created to apply to all freelance contractors – particularly those in the IT sector.
The contractor-related legislation, particularly the IR35, has been a highly-publicised and much debated regulation and its future is still very much in doubt. With a series of powerful and relevant organisations openly admitting their disappointment at the current legislation, it is become an increasingly prominent debate. So whilst the legislation may be an important part of contractors’ lives at the moment, it may not necessarily be the case 12 or 24 months down the line.