Many of you will have seen the recent announcement that changes to the IR35 legislation (Off-Payroll Working rules), which came into effect in 2017 in the public sector and 2021 in the private sector will be repealed from April 2023. This will come as great news to many current and previous contractors who feel the changes haven’t been applied correctly, resulting in many reluctantly working inside IR35 (paying tax and NI equivalent an employee) or as a result of fewer outside IR35 opportunities, opting to take a permanent role, often for reduced remuneration.
When I say ‘haven’t been applied correctly’ what I mean is many businesses have made blanket assessments (which wasn’t the intension of the changes nor permitted) or decided that they simply will only work with people where they know PAYE is being paid, often via an Umbrella Company or Fixed Term Contract. Thus avoiding the potential liability of making an incorrect Status Determination Statement (SDS), which if you use a lot of contractors over a long period of time could amount to a hefty bill to HMRC. Where an existing SDS records engagers as inside IR35, these will be hard for contractors to then reverse come 6 April 2023.
Whilst many will feel that repealing these changes is a positive and aligns to the Governments ambitions to stimulate growth and Investment in the UK, IR35 itself isn’t being abolished. Rather we are simply back to where we were circa 5 years ago when HMRC moved the responsibility for the SDS from the contractor to the end or fee paying client. We need to remember the reason they made this change in the first place was because of their inability to enforce their own rules, losing numerous court cases when trying to challenge contractors, who they believed had fallen foul of the rules. Fundamentally the Inland Revenue would have hoped that the changes in 2017 and 2020 would result in them receiving more tax take from wider usage of inside of IR35 roles than they have done since they brought the changes in, so far from people not paying enough tax, they’ve ended up paying less.
The repeal of the changes is only one part of the solution, I hope we will also see, (before the latest change comes into effect in April 2023) a simplification of the rules on how SDS’s are made. It is well known that the rules are open to interpretation and HMRC themselves have failed to come up with a robust way of enabling either contractors or end clients to make a SDS with confidence. A much needed simplification of the rules along with a tool that is fit for purpose would allow contractors to quickly and accurately make an SDS, ensuring they pay the correct (corporation or personal) tax and NI (if applicable) enabling HMRC to successfully challenge those who are deliberately operating fraudulently.
Only time will tell to see how the contractor market plays out and the response from organisations but that will only be once the repeal is confirmed in the Finance Bill.