On Friday 23 September, the new Chancellor announced that they will be reforming IR35 from April of 2023 – but what does this change ACTUALLY mean for you?
What IS IR35?
As with any form of legislation, there is a multitude of layers when it comes to details, workarounds and specifics. Nevertheless, the premise of the legislation is as follows:
“ IR35 is a reform unveiled in 1999 by the UK tax authorities. The latest regulation change – which came into force in April 2021 – forced medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.
Contractors found to be within the scope of the legislation – i.e. inside IR35 – will have to pay more tax than they might expect.
The reforms are part of the government’s crackdown on so-called disguised employment, where workers behave as employees but are able to slash their tax bills by billing for their services through Personal Service Companies (PSCs), which are taxed at lower corporate rates.”
What does it mean for contractors?
For contractors, the change means one (important) thing.
Individuals who offer their services through an intermediary, such as a personal services company, will be responsible for determining their employment status.
This includes working out and paying the correct level of tax and national insurance contribution. Essentially, this is a return to IR35 pre-April 2021 if you operate within the private sector and 2017 if you were in the public sector.
What does the change mean for businesses?
Businesses will no longer need to use the CEST tool with all of the work shifting back in the direction of the contractors and their limited companies. This change will help to save businesses time and money and allow them to focus on doing what they do best in growing the company and the brand.
This change will have a genuine impact on both contractors and businesses that utilise them – mostly positive. However, there are still a multitude of questions that are yet to be answered. For example:
- How will the job market react
- There was a high volume of ex-contractors who took on full-time employment during a turbulent financial period for safety and security – how will they react and what will companies do to try and retain their services?
- What will HMRC do differently? Will they implement a new strategy or will there be an influx in investigations?
- What will happen to the contractors who are currently inside IR35 contracts that extend past the April 2023 change date?
If you have any questions as a contractor, or as a business that utilises contractors – please feel free to contact our expert team, here: https://www.whitehallresources.co.uk/contact-us/