It has been announced that the government intend to repeal IR35 of both the 2017 and 2021 reforms to “simplify” the rules for contractors and limited companies. These reforms are likely to be positive for many firms as proving a contractor’s tax status will not longer be their burden. Whilst a review of the rules was expected, the announcement that the changes to IR35 are to be removed completely without any further consultation came as a surprise.
The Off-Payroll Working rules (IR35) were first introduced over concerns that workers who provided services to their clients through their own limited companies were paying less income tax and national insurance contributions than those people who worked and were directly employed.
Who do the IR35 rules apply to?
The IR35 rules apply to those who are workers who provide their services through a third party, a client who received services from a worker through a third party or an agency providing workers’ services through their third party. It effectively placed the burden on a company instructing those contractors to assess whether they were actually self-employed, or were in reality providing services as a worker or employee.
Will the test for IR35 change?
The basic test used will remain the same, and it will still be possible for HMRC to investigate genuine tax status in this area, however the burden will no longer be on the instructing companies to investigate this and prove they have done so. As new cases are heard, more clarity is created around this complex area.
It is very important for those effected by IR35 to bear in mind that IR35 being amended in this way does not impact their status or rights in the Employment Tribunal. Someone’s true status may still be an employee or worker in the view of the Tribunal, without IR35 intervention. In short, only the tax consequences are impacted by this change. For more information on employment status, please read here.
When will the changes take place?
It has been said that IR35 could be abolished from April 2023, however this is not confirmed yet as this has to be approved by Parliament. It is possible that a petition will be created due to the reaction so far, as IR35 was created to ensure people were taxed correctly. This means that even though the changes are likely to come into effect, it is not certain. This means that HMRC will currently continue to be able to make investigations and perform compliance checks to ensure that the rules currently in place are being followed and complied with.
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