Mark Lee, the founder of ContractElite, believes that the incentive for changing the rules of IR35 is not to create greater fairness between the self-employed and the employed but to increase the amount of money raised through taxation.
Chancellor Philip Hammond has already said that the increasing number of people choosing to become freelancers or contractors rather than taking on permanent positions means that there is potential for the reduction of tax receipts per head. If the Treasury’s predictions are true, then this trend will only increase in the future.
Many commentators expect to see IR35 legislation changed within the private sector. The Government will want to reduce the potential tax losses resulting from more people moving from permanent roles to contractor roles.
Before any change takes place, some businesses may insist that contractors use umbrella companies, as this makes it easier to pass any potential risks onto another entity. Companies can pay for this protection rather than trying to work out these challenges.
Businesses that are more confident will choose to directly engage with contractors. Because IR35 protects against tax evasion and disguised employment, companies that have a precise engagement strategy for contractors will not need the protection of an umbrella company.
The changes may also lead to some contractors moving away from self-employment to avoid the risk of IR35 violations. Those who continue to work as contractors may increase their day rates to keep their income levels stable under PAYE models.