Is it the end of the line for the contractor limited company?

This article has been contributed by FCSA Business Partner, Clarke Bell and does not necessarily reflect FCSA’s opinion. 

Reforms to the off-payroll rules (also known as IR35) come into effect from April 2017 for the public sector. This means that the responsibility for accessing IR35 status will move from the contractor / personal service company (PSC) to the public body that is engaging them.

Whist HMRC has not said when the move will be rolled out to the private sector, most accountants with an understanding of the issues believe that this is inevitable. One set of rules for the public sector and another for the private sector is not workable. The question is more of “when” than “if” – with many believing the “when” will be 2018.

The reaction from some public sector bodies is that they no longer want to work with Limited companies – as they do not want to have to deal with the hassle of assessing the status of each of its contractor workers. Contractors are being told to convert to a PAYE umbrella or you don’t have a job.

When the rules change for the private sector, many engagers are likely to take a similar stance. This will have a serious effect on a number of parties:

  • Contractors – will continue to feel ‘under the spotlight’. The whole IR35 is an unwanted distraction, and from April 2018 tax-free dividend allowance of £5,000 is being cut to £2,000
  • Contractor accountants – are likely to see a considerable downturn in client numbers, as their contractors with limited companies turn to umbrella organisations instead – or take early retirement or full-time, employee roles
  • The engagers – will have to take the stance of not dealing with Limited companies / PSCs or, if they continue to pay the PSC direct, they will have the responsibility of deducting PAYE and NIC as applicable
  • Insolvency Practitioners – Members’ Voluntary Liquidations (MVLs) are a very tax-effective way for those contractors who want to close down their solvent limited companies. Those Insolvency Practitioners who are providing an MVL service will also be keeping a keen eye on these developments.

The future

As with any changes, there are likely to be winners and losers, as well as a degree of uncertainty for everyone concerned.

What we can be sure of is that the Government will continue to look for ways of generating much-needed revenues. There aren’t many areas for them to target. It would be great if they would properly go after those massive global corporations which are paying far less tax proportionally than the rest of us. However, it still seems that they are preferring to go for the “easy targets” – which includes the contractor market.

Enquiries

If you would like to discuss any of the above, please contact FCSA Business Partner, Clarke Bell Insolvency Practitioners on mvl@clarkebell.com or 0161 907 4044.

 

Image courtesy of mrpuren at FreeDigitalPhotos.net