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That escalated quickly. IR35 v2.0

31 Jan 2017

| Author: Jason Smith


That escalated quickly. IR35 v2.0

It is unusual in Government to have an abrupt change in legislation and be able to rapidly monitor its effects in a reasonably sized control group of the population. But that is about to happen, and the people affected quite probably include you, dear reader.

One could argue that the changes being made by Donald Trump in the US meet these criteria, but they are either too specialist, too small or too complex for it to be possible to accurately monitor the consequence of the change. For example, the repeal of Obamacare is almost impossible to monitor quickly and effectively because the changes are so complex and the stakeholder groups so vast.

When it comes to sweeping changes in the UK, we have Universal Credit – an attempt to simplify and reform welfare payments. However, one cannot accurately assess any of the direct outcomes instigated by this massive change in law. They may become obvious in the future, but five years after the legislation received Royal Assent, not much has changed, or at least not much that one can ascribe to the change.

IR35 is different, however.

For those unfamiliar with this arcane tax clause, off-payroll legislation (commonly known as IR35) was originally introduced in the year 2000 and designed to stop the 'disguised employment' of contractors, particularly IT and medical contractors. It prevents such contractors from issuing dividends via a personal service company in lieu of paying full salary and the associated income tax and National Insurance Contributions (NIC).

I won’t go into the details of the change, or the rights and wrongs of tax legislation in this blog. If you are interested, IndigoBlue has prepared an IR35 briefing note with more information.

With regard to what has happened as a result of IR35, it would be difficult to argue that the changes wrought by a piece of legislation first enacted 17 years ago have been rapid, but in this particular case, there haven’t been any changes, because, by and large, everyone ignored it. So, for the purposes of this blog, I will assume that the actual legislation will be enacted on April 6th, because, on that date, HMRC has decided to ignore it no more.

On a personal level, many public-sector contractors will be concerned about how this will affect their take-home pay and the administration overheads it could impose. But at a societal level, the change will be fascinating, because it should be reasonably easy to monitor. This is because it affects a population that is small and well defined enough to be assessed, but large enough to have significant, measurable consequences.

The intent of the change is to raise more tax revenue from contractors. But this may well raise costs for the public sector generally, which may negate this increase. It may persuade a number of contractors to become permanent employees (if you are thinking about this, email us at It may depress rates in the private sector (which isn’t covered under the current change and may see a flood of refugee contractors) and boost rates in the public sector (which may have to try and prevent a mass exodus of contract resource). It may lead to skills shortages in Government and a return to the hegemony of the large IT service providers, who pay a lot of tax but charge a lot of money.

Who knows? The point is that the change will be implemented brutally quickly and the outcomes should be apparent within a year. And for students of change and aficionados of the laws of unintended consequences, it will be a fascinating period of time.

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Jason Smith

Jason has over 20 years' IT experience, working with major corporations including GlaxoSmithKline, British American Tobacco and United Utilities. Prior to joining IndigoBlue in 2003, his most recent role was as the director of Logica's pharmaceutical practice, leading sales campaigns into major pharmaceutical organisations.


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