The IR35 was first conceived in 2000 and has been edited numerous times over the years. It wasn’t until April 2017 that it was rolled out to public sector after being reformed. Further changes were then implemented in 2018 and had a significant impact on contractors.

With more changes expected to hit the sector soon, many within the industry are fearing the worst. So, what could the most recent changes within this complex legislation mean for the financial and contractor sector?

Recruitment agencies could face significant tax bills

One of the main concerns regarding the new IR35 legislation which is due to be introduced into the private sector in 2020, is the that recruitment agencies could be hit pretty hard. As they will now be responsible for setting IR35 status for their contractors, they could hundreds of thousands of pounds in increased tax bills if an error is made by the contractor.

For this reason, it’s crucial that recruitment agencies become fully aware of IR35 and its potential implications. This will help them to advise the contractor on how to make accurate IR35 status decisions, avoiding potential penalties.

Bad news for insolvent businesses

Another potentially challenging change being introduced, is HMRC’s move through the Order of Priority list. The government body will now be able to chase debts up sooner for companies which have entered insolvency.

The move is set to generate £60m by 2020 and 2021, and a staggering £175m by 2023 to 2024, to the Treasury. However, it could prove disastrous for the financial sector, both for businesses looking to borrow finance, and for the finance providers themselves.

Commercial finance providers will ultimately be pushed down the queue when it comes to collecting debts from businesses which have become insolvent. This is likely to cause them to alter their lending rules, ensuring businesses can afford to take out the finance before approval. As fewer companies are likely to meet these newer restrictions, it’s undoubtedly going to push more into insolvency.

Contractors could face undue tax and a loss of business

Contractors who are fully self employed are likely to face the most losses under the new IR35. Without an understanding of the legislation, it’s going to lead to errors in status filing, costing fully self-employed contractors a significantly higher tax bill.

The changes are also going to make recruitment agencies think twice about hiring contractors due to the losses they’ll potentially face. So, contractors may experience fewer opportunities, which could ultimately lead to the loss of their business.

How can contractors and financial sectors prepare for the changes?

First and foremost, contractors, agencies and financial sectors can prepare for IR35 by understanding it as much as possible. Seeking advice from a specialist such as InterimPartners is also a good idea.

While the updated IR35 is certainly concerning for contractors and agencies, being prepared in terms of understanding the new rules is key to overcoming the challenges. Tax Investigation Insurance could also be worth investing in.