As contractors eagerly await the Medium-Term Fiscal Plan on Monday 31st October, we take a look at the latest on IR35.
With potential implications to be unveiled, the plan will fall 5 weeks after the mini-budget 2022, where, surprisingly, the repeal of IR35 reform was announced.
It was announced that the IR35 off-payroll legislation would be simplified from 6th April 2023. The rules will revert to the 2016 position with the recent 2017 & 2021 reforms, which were largely unpopular, due to be repealed.
This was great news for contractors as they would once again be responsible for determining their own employment status and paying the correct tax and NI contributions, rather than the employer.
Ultimately, this change makes it easier for companies to hire contractors which will result in a significant uplift of people moving into self-employment or returning if they had gone back to employment due to the complexity.
What has the government said since?
Since the announcement of the Government plans to repeal the Off-payroll (IR35 Reforms), there has been confusion across the internet and social media. The most common is that “IR35 has been repealed”.
IR35 in its whole form will remain. There is no getting away from that for now, however it is the controversial reforms to IR35 rules that will be scrapped.
The changes will come into effect from 6th April 2023, at the start of the new tax year.
For now, the IR35 reform’s repeal is set to stay, despite the pressures on the economy and the unstable nature of the government, with many agreeing the passing the responsibility of status back to contractors is the right thing to do.
Businesses are often struggling with IR35 issues, which is hindering growth due to a shortage of contractors. But what is the latest with IR35?
5 things you need to know as a business or a contractor
1) If IR35 has not been scrapped, what has?
Nothing has been “scrapped” at the moment, and certainly not IR35 in general.
The plans are to repeal the Off-payroll working rules (“IR35 Reforms”), which were introduced in 2017 and 2021. The original IR35 rules will remain in place.
2) What will change in April 2023?
What causes the most confusion is that the IR35 legislation has changed over the course of time, but is still used to refer to two pieces of employment legislation.
The Off-payroll working rules (Chapter 10 of the Income Earnings and Pensions Act) 2003 were introduced into the public sector in 2017.
This was then extended to the private sector in 2021 for medium and large companies.
The original IR35 rules date back to April 2000.
In basic terms, under the original rules, contractors were responsible for deciding where they stood in terms of IR35 status and it was their responsibility to ensure they were paying the correct tax. Under the new rules, hiring firms took on that responsibility for assessment and tax liability.
In 2015, it was planned to replace IR35 with the term “off-payroll working”, however Ministers decided this would be a huge burden on small businesses, and the rules only applied to medium and large companies instead.
The change in 2023 will be for the new rules, with things reverting to how they were before.
Contractors will make their own assessments and deal with their own tax implications, as well as bear the liability if they get it wrong.
It’s business as usual until the law officially changes, however companies and contractors should start to get prepared.
3) How exactly should businesses and contractors prepare for any changes?
For now, businesses should comply with the Off-payroll working rules. Until the Finance Act is changes by a bill, they remain law.
If you are a business who has contractors working for you and operating Outside IR35, they can continue in the same way. Where firms may have implemented a decision to disallow limited company contractors, due to the IR35 burden it has created on the business, it may be time to reconsider reversing that decision. From 6th April, there will be a huge amount of talent that you can now retain.
If you are a contractor and you believe you should be operating ‘outside IR35’, you should begin assessing your status. If you need assistance with this, Account-Ease can help. We work with specialists who can support contractors across all industries identify their status and make sure they are paying the correct amount of tax to protect themselves.
4) Will all firms take on contractors again?
This will likely be a gradual process where firms lift their blanket bans and allow contractors to work under a limited company again, providing that the contractor is “outside IR35”.
Firms that did put a blanket ban in place may decide to work with contractors again as the switch from the old rules to the new rules was pretty easy to navigate, and this should be fairly seamless too.
If they decide to engage with contractors again on an “outside IR35” basis, proper assessment will need to be in place though. This is to ensure that contractors meet their compliance, and they cannot be accused of facilitating tax avoidance.
In terms of recruitment, agencies will be expected to prove due diligence is taken in the recruitment of contractors, and that everything is above board with an IR35 contractor check.
There is also the issue of the transitioning of existing contractors, as they do now have different rights. Companies cannot be seen to have workers finish one week as an on-payroll worker and then return after the weekend as a limited company contractor. The transition needs to be carefully considered and a gradual process, as this is one of the reasons for IR35 being introduced back in 2000.
5) Will I no longer have to use an umbrella company?
The IR35 changes won’t make a huge amount of difference to those who choose to use an umbrella company. However, there may be less of a requirement to operate through umbrella companies, providing contractors engagements are genuinely outside IR35.
Some contractors may be offered umbrella only work if firms continue to engage temporary workers and treat them like employees, whereas most contractors will operate via a limited company.
Positive Steps for Contractors
Overall, the announcement signals a huge change and a positive step towards the government supporting contractors and those that are self-employed. If you are looking for any further support and want to sign up to an accountancy firm that is fully MTD-compliant, look no further than Account-Ease. You can join us today by calling our team, or filling in our online form here.
We can support you throughout the changes into the new tax year and beyond. Contracting is back!
