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Contractors – ouch?

All Areas > Legal & Finance > Money Matters

Author: Roger Downes, Posted: Monday, 25th November 2019, 09:00

Whilst the minds of politicians and most of the country were tied up with the UK’s exit from the EU and more recently the impending General Election, the government has been working away at changes to the tax rules for many of our small businesses.

The widely-publicised change in 2019 was the introduction of Making Tax Digital for VAT. By now, VAT-registered businesses that are required to comply have filed two quarterly returns under the new system and are beginning to get used to life in the new technological world in which they are obliged to operate.

So what will 2020 bring in terms of significant changes to the tax rules for small businesses? The answer is IR35 or ‘off-payroll working’ as it is now more correctly known.

Many contractors operate through forming a limited company and selling their services through invoices to their customers rather than being on the customer’s payroll as an employee. Why would they do that? Well, for purely commercial reasons only of course (just in case anyone from HMRC is reading this article!). The fact that the customer doesn’t have to pay employers’ national insurance and the contractor gets some decent tax breaks are purely co-incidental benefits, you understand!

Taxing contractors as if they were employees

HMRC has called time on this practice by requiring, from the start of next tax year, the ultimate customer to tax the contractor as if they were an employee, even if the contractor continues to submit invoices. It removes the tax breaks for both the customer and the contractor.

As you can imagine, it doesn’t sit well with either the contractors or the customers, although there are a number of people who are unaffected by the change who think it’s about time.

My issue with it is that we are four months away from its implementation and the government hasn’t even issued draft legislation yet, let alone got it through parliament. They are all too pre-occupied with the B word and now the election.

It’s just another example of uncertainty in the world of small business.

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