IR35 Update: The clock is ticking faster

There are now just six months to go until HMRC’s IR35 reforms kick in, and last month saw two key developments:

  1. Three BBC presenters were defeated by HMRC at an IR35 tax tribunal and faced having to repay a combined total of £920,000 worth of back taxes. With a ruling that the three were employees in all but name, paid through personal service companies, the BBC has stepped in to help deal with the financial fall-out.
  2. Barclays has called time on all off-payroll working and shifted all future contractors onto PAYE saying they will no longer engage those who “provide their services via a personal services company, limited company or other intermediary”. Companies including HSBC, Morgan Stanley, M&G Investments and GlaxoSmithKline have quickly followed suit.

Meanwhile, HMRC is already in touch with many firms – including construction companies – requesting they justify the self-employment status of their freelance consultants.   They are also contacting freelancers themselves and accusing them of wrongly operating outside IR35 legislation.

Hudson Contract Managing Director Ian Anfield explains:  “In essence, the change from April 2020 means that if you use contractors who seek to maximise their earnings via a limited or personal services company, it is your business, rather than the contractor, who will be liable for the entire tax shortfall if HMRC decides the engagement is not IR35 compliant. Whereas at present, HMRC can only go after the individual.

“As you would expect, the new rules are complicated, and HMRC say they believe only 10% of current freelance engagements will pass their tests.  And because contractors tend to be well paid, failure could result in fines that make CIS penalties look like small change.”

Hudson Contract advice:

  • With six months still to go, many businesses feel there’s still plenty of time to prepare. But what if any of your current or prospective engagements go past April 2020?
  • The time to start looking at your contractors is now.
  • Are you better off to follow Barclays’ example and engage all freelancers on a PAYE basis?
  • Would your contractors take a pay cut, or will you need to find extra money – or different contractors?
  • What’s your potential financial risk if you stick with your current arrangements?

Ian Anfield adds:  “Changes to the way construction companies engage contractors are now a foregone conclusion, and money lies at the heart of the issue.  It’s about who will pay tax and NI and whether contractors will have to settle for less, or if firms will absorb extra costs in order to keep the freelancers they rely on.  Bigger companies will be affected first, but there’s good reason to think that once the new rules have been established, they will apply to firms of all sizes.

“As you would expect from Hudson Contract, we found a solution to eliminate the increased financial risk of continuing to use consultants once the rules change.  If you’d like to know more, just get in touch and find out how we can help.”

Further information at:


Ian Anfield

Ian Anfield

Managing Director, Hudson Contract

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