HMRC are recently highly focused on this area, bringing more claims to the first-tier tribunal than we have ever seen before in twenty or so years that IR35 has been around.
Worse still for the risk-aware business, HMRC are winning some of these cases.
Rightly or wrongly, HMRC see massive non-compliance and believe that the majority of independent contractors and consultants are really employed.
Given how the sector developed, this is not surprising. For as long as it was down to the consultant to review the status of her own business and file returns to HMRC accordingly, complacency crept in:
- Independent consultants sought work through employment agencies because this was the best way to get work;
- Clients advertised for ‘roles’; and
- Agencies asked for ‘CV’s’ and talked about ‘salaries’.
You can see how it looked to HMRC.
With the exception of small private client businesses, HMRC’s legislative changes now require the client to make a declaration on whether the legislation applies, with tax consequences for them for not exercising sufficient care.
Many client businesses decided to never use independent contractors again. Others pushed them all toward umbrella employment. In response, large numbers of contractors (up to 75% in one survey) said they would not provide independent services again.
That is a lost opportunity on both sides.
Contractors and consultants accepting risk-averse status declarations become more expensive to engage and less competitive, often without any of the advantages of employment.
The irony is that the client’s declaration on engagement status does not determine whether the legislation actually applies: the criteria in the legislation have not changed and they do not refer to the client’s declaration.
To keep your competitive edge, speak to us for expert advice.