What are the big issues for limited company contractors in 2022?

The challenges that contractors have been up against in 2021 have been unprecedented. Brexit, Covid-19 and, who could forget, IR35 reform, writes Seb Maley, CEO of status advisory Qdos.

Each has presented obstacle after obstacle for the contracting community – a community which went largely unsupported by the government throughout the pandemic, and most of whom will be glad to see the back of a turbulent year.

So with the new year nearly upon us, how might 2022 play out? What are the forces set to shape the UK’s contractor sector? Should contractors be preparing for another difficult 12 months? Or can they approach January with cautious optimism?

IR35 to top the agenda (again)

My expectation is that IR35 will remain the big issue for contractors next year, understandably. Reform of the legislation in the private sector in April 2021 has, after all, caused major disruption and dramatically changed ways of working for many contractors. But it’s not all bad news as we head into the new year.

True, far too many businesses have blanket placed contractors inside IR35 or needlessly forced them to work via umbrella companies. However, thousands of firms are still working with contractors, engaging them outside IR35.

Speaking from experience, the tide is turning. Fast-forward to 2022 and the dust will continue to settle, more organisations will get to grips with the reform and dare I say it, we may well see big-name clients reverse contractor bans.

HMRC to pursue contractors -- and businesses

That’s not to say the threat posed by IR35 is set to disappear for contractors. This is despite the rollout of private sector changes which, in most cases, mean businesses now shoulder the IR35 liability. Contractors need to be aware that HMRC still retains the right to investigate them ‘retrospectively,’ by which I mean the Revenue can probe contracts dating back to prior to the April off-payroll rules.

Taking into account the pressure the tax office is under to raise revenue and stamp out what it perceives to be non-compliance, contractors cannot rule out being contacted about their IR35 status in 2022 and beyond.

Government to face fresh scrutiny

When it comes to IR35, the government (with HMRC in tow) has a lot of work to do in the coming year. Whether it’s overhauling HMRC’s fundamentally flawed IR35 tool, CEST, or ensuring that businesses aren’t carrying out non-compliant blanket assessments, it’s vital that IR35 remains on the agenda in parliament.

The findings from the follow-up Lords review into IR35 reform will no doubt turn some heads, while the NAO investigation into IR35 pencilled in for the winter of 2022 should also do the same. This time, what matters is that the government makes positive changes off the back of these reviews. For once, the recommendations must be listened to.

Tax avoidance schemes will be stamped out; right?!

Promises to tackle tax avoidance schemes must be delivered upon next year. It’s now or never for this government. Following IR35 reform, more contractors are now operating through umbrella companies - often with little choice but to do this - yet still the umbrella industry remains unregulated.

Almost needless to say, the proliferation of unscrupulous tax avoidance schemes posing as ‘100% compliant’ umbrella companies pose a very real risk to contractors. To stop a Loan Charge scenario from occurring again, this government needs to step up in 2022.

‘False self-employment’ set to become a focal point

With IR35 reform in play in both the private and public sectors, we may see the government also begin to focus on the employment status of the wider self-employed workforce going forward.

By this I mean whether or not sole traders are genuinely self-employed or if the business engaging them is facilitating ‘false self-employment’ and therefore owes employment tax, similar to how IR35 works under reform.

While this isn’t something that directly impacts contractors, it’s something contractors need to be aware of given it makes up part of the government’s strategy for policing tax compliance among self-employed workers.

No shortage of challenges, but reasons to be hopeful

Standing back, after what was a historic year (for many of the wrong reasons) in the contracting world, there is no shortage of key issues on the horizon for 2022.

However, many of these challenges - whether it’s IR35 reform or HMRC’s heavy-handed approach to enforcing compliance - are manageable and, with demand for contractors reaching historic heights in recent months, I fully expect this vital sector of the UK’s workforce to not only survive, but perhaps even thrive.