Can you make me care about IR35 and the Loan Charge?

We get a lot of comments from readers and emails from people concernced about how the Government is changing the rules on contractors.

Contracting is a key part of the UK employment market with nearly 15% of the UK population registering at self-empoyed. Of course in reality, a whole range of people don't register as their incomes are too low to really matter from a tax perspective or perhaps their job descriptions are not really appropriate.

However, HMRC and the Government have long seen that contracting can be bad on two counts. One is that Public and Private sector companies use contractors as an accounting trick to reduce headcount and employers NI (see all BBC presenters as a great case of this) and secondly that it allows contractors to create synthetic situations where they are really employed but are paying taxes at a much lower rate.

The loan charge was an attempt to claw back taxes owed by people who had used offshore vehicles to lower their taxes. On balance, I think they Government were wrong to backdate such a change, as a backdated law is never a good one and people were not breaking the law when they entered into these agreements. It would have been better to outlaw the schemes and start afresh, but on the other hand everyone entering these schemes new full well it was a tax avoidance ruse and for no other purpose - nonetheless, it is not a terrible aspect of HMRC that they can at a whim choose to retrospectively change tax laws (what would w say if they decide to increase income tax by 5% retrospectively...)

Now the IR35 rules are changing and it is having a big impact, major companies such as Lloyds and Barclays are firing contractors on mass and instead hiring fewer full-time people to replace them. It need not be like this, they coudl take on all the same people on a zero hours basis for example. the balance in the past has been Contractors (and it is minaly construction and IT on a large scale in terms of sectors) taking the risk of patches of unemployment  and no benefits for the much lower tax cost of the terms of contracts. For contractors doing up to 6 months nothing really changes, the big change is in trying to do a year or more of contracting on a single job. As the real world shows it, it is forcing employers to think more carefully about how they resource their large, long-term projects.

At the time of Brexit, this is an odd thing to pursue as it does seemingly reduce labour market flexibility in order to improve the HMRC tax take. In terms of an election, it loses votes from contractors whilst likely making little difference to those employed, although there are a few vote sin making celebs squirm in public.....still, I don't see it as sch a big deal and overall am in favour or employee taxes being fair across the board. The comments on this will no doubt be interesting...