The IR35 tax avoidance reforms finally went into effect in the private sector on April 5, 2021, which was a year later than originally planned after the government gave companies another 12 months of preparation time, as thought they had enough to deal with in light of the pandemic.
The changes, which were first introduced in the public sector in April 2017, made medium and large end customers responsible for determining the fiscal status of the IT contractors they hire, posing a massive administrative burden for companies. companies involved.
To avoid this, some companies reacted by introducing hiring bans for limited partnership contractors or by issuing blanket determinations, according to which all contractors they use are classified as workers within IR35.
Any IT contractor who is classified as a worker within IR35 must pay the same payroll taxes and national insurance contributions as a salaried employee, but is not entitled to workplace benefits such as paid vacation or sick leave, for example.
For this reason, the implementation of the reforms has proven to be highly controversial and subject to many heated debates throughout 2021, while the consequences of implementing the same changes in the public sector in 2017 have also made their presence known. . this year.
Here are the top ten Computer Weekly IR35 stories of 2021.
1. Zurich Insurance broadly prohibits contractors
In the run-up to the IR35 reforms, details began to emerge of how some companies were reacting to the shift in responsibility that the changes would confer on them.
In early 2021, Zurich Insurance became the latest in a long line of financial services companies to declare that any contractor who wanted to continue working at the company would have to provide their services in the future through an umbrella company.
2. Argos responds to IR35 with an offshoring impulse
The looming implementation date of the reforms prompted some companies to look for other ways to reduce their reliance on limited partnership contractors, with retailer Argos opting to offshoot its digital team tasks after determining that they all work within IR35. .
The decision was described as a “lose-lose” situation for the UK economy, but also for the Treasury, as offshore workers will not have to pay UK taxes.
3. Contractor requests further delays until April 2021, start date denied
After the government paused its plans to implement IR35 reforms in the private sector due to the pandemic, the revised start date of April 2021 prompted contracting industry stakeholders to call for the changes to begin. it would be further delayed as the pandemic continued. out of.
However, the government refused to heed their calls and the delayed reforms took effect in the private sector in April 2021.
4. DWP received a tax bill of £ 87.9 million for IR35 compliance failures
The publication of the annual accounts of the Department for Work and Pensions (DWP) drew attention after it revealed that the department had been ordered to pay £ 87.9 million to HMRC after a review of its compliance procedures IR35 revealed that it had incorrectly assessed the employment status of its company. contractors for several years.
The document confirmed that the errors came to light in March 2020, just under three years after the IR35 reforms took effect in the public sector, following a review by HMRC of the DWP compliance processes. that brought to light “historical errors” in its procedures.
5. The Home Office is billed for “sloppy application” of IR35 rules
The DWP was far from the only government department whose implementation of the IR35 reforms was weighed and deemed deficient by HMRC. A sweep of the Home Office accounts revealed that he had been hit with a double whammy of tax charges and fines during the 2020-2021 financial year.
The department incurred a £ 29.5 million bill to cover income tax, national insurance contributions and interest that HMRC claims were lost as a result of misclassifying its contractors as non-IR35 workers. It also incurred an additional £ 4 million fine for its ‘sloppy’ application of the IR35 rules.
6. Confusion over who pays employers’ NI leaves contractors out of pocket
In addition to a change in the responsibility of who is responsible for determining how contractors should be taxed, the reforms also introduced changes that mean that limited partnership contractors are no longer required to cover the cost of employers’ NI. on assignments considered within the scope of IR35. rules.
However, anecdotal evidence suggests that many contractors have erroneously paid, and still are, the employers’ NI account, and the litigants suggest that thousands of contractors may have been left out of pocket as a result.
Then details emerged about the legal actions taken against umbrella companies, employment agencies and even end clients, as the contractors seek to recover the money that is owed to them.
7. Pressure is growing on the government to implement regulation for umbrella companies.
The initiation of the reforms has been linked to a dramatic increase in the number of contractors providing their services to end customers through umbrella payroll processing companies.
Despite having a large number of contractors on their books, and the fact that these companies are responsible for handling large sums of money, the fact that they are not regulated has become a recurring topic of discussion among stakeholders. in the recruitment market this year.
This is due to reports of non-compliant umbrella companies that withhold vacation pay from their contractors, “take” money from their pay packages, and in some cases act as a front for covert pay schemes linked to employment. tax evasion.
For all these reasons, this year there have been increasing calls from parliamentarians, political advisers, contracting authorities and others for umbrella companies to be regulated.
8. Giant Group’s umbrella company suffers a cyber attack
There were new calls for umbrella companies to be regulated in the wake of an alleged ransomware attack on Giant Group’s payroll processing company in September 2021.
The incident prevented the company from paying salaries to thousands of contractors across the UK after the company was forced to suspend all operations from 22 September for several days following the discovery of suspicious activity on its network that It suggested that he had been the victim of a cyberattack. .
9. Network Rail backs up on a blanket within contractor IR35 determinations
Market hiring experts have long predicted that companies that were reckless in pushing blanket bans on hiring limited partnership contractors on an external IR35 basis would reconsider their position in time, on the grounds that many IT contractors they would not be willing to work from within. .
In September 2021, the publication of the 2020-2021 accounts of the Department of Transportation (DfT) suggested that Network Rail had made a U-turn in its blanket within the position of the IR35 contractor, and the document revealed that 1,025 of its 1,912 contractors were designated as outside of IR35.
This marked a considerable change for Network Rail, given that the prior year’s accounts showed that 99% of the 538 contractors on their books during the 2019-2020 financial year were working within IR35.
10. The government intensifies its efforts to promote the regulation of umbrella companies
As 2021 drew to a close, there were signs on the horizon that, after years of slow or no progress, the government has begun to step up its efforts to push through regulation of umbrella companies.
This is because HMRC joined forces with HM Treasury and the Department of Business, Energy and Industrial Strategy (BEIS) to launch a consultation on how the umbrella market operates so that you can learn more about the role these companies play in the field. wider. labor market supply chain.
In addition to this, BEIS established plans in 2021 to create a Single Enforcement Agency that will protect workers from dishonest employers and negligence in the workplace, which will offer protection to general workers.