In the chancellor’s ‘mini-budget’, there was an unexpected announcement for contractors and freelancers across the UK. The IR35 off-payroll work, both public and private sector, will be repealed from April 2023.
We couldn’t agree more with the chancellor, who commented that “reforms to off-payroll working have added unnecessary complexity and cost for many businesses.”
This is welcome news for the self-employed industry who have been feeling the hit on their take-home pay. The government has now reconsidered the restrictions that stagnated the country’s self-employed. Positive news for contractors and all the businesses that rely on the talent that contractors bring.
The IR35 reforms, which came into force in April 2017 for the public sector and April 2021 for the private sector, will now be reversed. From April 2023, we expect that contractors and freelancers will be able to, once again, trade through their own limited company. Attracting the independence that is paramount in running a business, along with tax efficiencies which compensates those that burden the risks and responsibilities of entrepreneurship.
However, those in the industry will need to proceed with caution. Contractors that have previously received a determination demonstrating their assignment as inside IR35 (by the end client) will need to be confident that the status was incorrect, recording a strong case for their contract and working practices being outside IR35. It is unknown whether HMRC is looking to take advantage of situations like this to review and tax assess contractors who have operated inside and outside IR35 in recent tax years.
There is also no guarantee that the change in legislation will result in a shift in mindset with business. Those that chose to implement blanket bans in 2017 and/or 2021 may continue to do so, despite the risk of missing out on the talent pool within the contractor community.
End clients and agencies also need to be mindful of their responsibilities, which are unchanged by this announcement, to prevent the facilitation of tax evasion in their supply chains by taking all reasonable steps, the repercussions of which are not insubstantial.
What this means for Contractors
From April 2023, contractors and freelancers will be responsible for determining their tax status. Their agency and/or end client will not need to be involved in the process.
In determining the tax treatment of an assignment, there are three main areas that we look for from an IR35 perspective which are as follows:
- Substitution: That the contractor has an unfettered right of substitution (of a suitably qualified equivalent should the client be unable to attend);
- Lack of Control; that the contractor has autonomy over their work; and
- Lack of Mutuality of Obligation; that there is no mutuality of obligations between the parties beyond the current assignment.
After considering the three main areas, there are other areas to consider, including; financial Risk (does the contractor carry the financial risk? Do they pay for their own insurance? Do they take a credit risk if their client/agency doesn’t pay?), equipment (does the contractor provide their own equipment?) and being in business on own account – (does the contract set out that there are no restrictions (save for aspects relating to commercial sensitivity) on them undertaking assignments for different clients?)
ICS Accounting has developed an exclusive FREE IR35 role-based assessment tool. Click HERE to assess your assessment.
What this means for Agencies
This is great news for agencies. The red tape and admin burden of IR35 off-payroll working will be removed. Agencies will be able to spend their time interviewing and placing contractors with their public and private sector clients without the need for questionnaires, discussions with their client about employment status or the CEST tool.
Contractors will be responsible for determining their own tax status, without the need for involvement from the agency or end client. Agencies can get back to business!
If you are sure what the IR35 repeal means for you, please don’t hesitate to contact us directly at 0800 195 3750 or email firstname.lastname@example.org and a member of the team will be in contact.