After a week in which several major hirers of contractors declared that they would be forcing all of their freelancers on to PAYE income tax and National Insurance – so-called “blanketing” – come the new financial year, on Wednesday it appeared that some good news for UK contractors had emerged.
Sainsbury’s, who engage a number of contractors via their banking arm, issued a statement declaring that they would be applying the new IR35 rules properly: making individual IR35 status assessments on a case-by-case basis, supported by the government’s official CEST status checker tool for the IR35 rules.
The news came as a result of a contractor getting in touch with freelancer website itcontractor.com to inform them that Sainsbury’s had told its contractors the same thing as GlaxoSmithKline, Wells Fargo, Aegon and Rolls Royce have communicated with their contract workforce recently: Sainsbury’s was to apply a blanket policy of forcing all contractors onto PAYE or leave the company.
Itcontractor.com then published the news in an article last Friday. Sainsbury’s saw the article and contacted the website: “There is a news story on the site alleging Sainsbury’s is automatically registering all contractors as IR35 – this is completely untrue. A quick call to the press office would have confirmed this. Please can you correct the article immediately?” they emailed the website.
The contractor website issued a retraction via a new article published on Wednesday, which boldly declared:
“That’s that all cleared up now and it is very good news for contractors. As I told Sainsbury’s we are much happier publishing good news for contractors than publishing bad news for them.
“And it is very good news indeed.
“One hopes that other companies in the food retail sector will follow Sainsbury’s example. In the banking sector all the major banks followed HSBC’s example in blanket banning the use of personal service companies.”
This news was also reported in an article on ContractorUK.com.
However, the website was promptly flooded with emails from Sainsbury’s contractors who wanted to set the record straight: whilst Sainsbury’s do intend to check each and every one of their contractors’ IR35 employment statuses individually, they will do so using CEST and CEST alone, and fully expect nearly all of their contractors to fail the IR35 test and have to move to a PAYE solution.
Sainsbury’s subsequently issued a press release confirming what the aggrieved contractors were telling itcontractor.com:
“Sainsbury’s is committed to taking the new legislation seriously. We are making individual determinations for all contractor assignments and whilst our working practices will mean that we are likely to deliver a very high number of ‘Inside IR35’ determinations, there may still be a handful of opportunities to work ‘outside of IR35’.
“Our ongoing commitment is to assess every existing and new assignment using the CEST tool, to make that determination and give clarity before an assignment begins.”
The original source who contacted the website told them: “Sainsburys has clearly stated that they would not change their working practices to be outside IR35 compliant. Several of the contractors I have spoken to have committed to leaving Sainsburys ahead of April.
“However, it might need to be by February in case March work falls in April’s billing. It may even be by January if they issue the determinations in January and we cannot accept them without opening ourselves up to incorrect and unfair back tax bills which would mean we’d effectively be working for free or be negative to continue working accepting those determinations.
“Quite a few people I have asked have contracts ending in March anyway so they won’t be re-signing or accepting Inside IR35 either way.”
All of which does not offer contractors a lot of festive cheer this Christmas. Many contractors are being told that they effectively will have to pay employment taxes without receiving employment benefits, even if they work on an “outside IR35” basis, or leave the company.
For those lucky contractors whose clients intend to operate Off-Payroll IR35 properly, the likelihood is that they will end up in the same boat, thanks to HMRC’s CEST tool, which was updated recently following an uncharacteristically public critique by the Chartered Institute of Taxation, but remains inherently flawed due to its IR35 “checklist” approach, an approach that has been consistently rejected by the courts.
The best contractors can hope for is a delay to the implementation of the Off-Payroll IR35 rules, which is set to take effect in April, due to the government’s promised review of the new IR35 rules. However, there is unlikely to be an announcement on when a IR35 review will take place – if any – and whether that would mean a delay, until after Christmas, leaving thousands of UK freelancers in doubt of their futures over the festive period.
20th December 2019.