|
Note: As of 16/10/22, this information was correct. However, the IR35 U-turn was U-turned on 17th October 2022.
On Friday 23 September 2022, the UK’s new chancellor Kwasi Kwarteng – in the mini-budget – announced the repeal of the off-payroll working rules introduced in 2017 and 2021 from April 2023.
What does IR35 repeal mean?
In April 2000, the IR35 “off-payroll working” rule was introduced in an attempt to prevent tax avoidance through “disguised employment” (i.e., labour).
In April 2017 (public sector) and April 2021 (private sector), the UK government changed the IR35 legislation, shifting the responsibility for determining one’s employment status for tax (your IR35 status) away from the contractor to the end client.
The latest IR35 announcement reverses this change. From 6 April 2023, contractors and freelancers will once again be responsible for determining their IR35 status, irrespective of whether the contractor is working in the private or public sector, and will be responsible for any tax liabilities should they get it wrong.
When will IR35 repeal go into effect?
6 April 2023. It’s in writing in the government’s Growth Plan.
Has IR35 been scrapped altogether?
No, IR35 still exists. It is not being removed and instead the legislation will revert back to its original format under Chapter 8 ITEPA 2003.
Contractors will be responsible to determine their IR35 status. Status Determinations from end clients will no longer be a legal requirement and contractors will have to ensure that they pay the correct taxes, based on their employment status. Contractors will be responsible for any tax liabilities should they get it wrong.
Does the IR35 repeal apply to both the public sector and private sector?
Yes, the legislation will be repealed for both sectors. The reforms made to the IR35 off-payroll working regime in 2017 (for the public sector) and in 2021 (for the public and private sector) will be repealed from 6 April 2023.
Will CEST be scrapped?
No, CEST (Check Employment Status for Tax) still exists. HMRC will likely promote CEST as their preferred tool for you to determine your IR35 status.
What’s going to happen between now and April 2023?
This is a difficult question to answer and depends on the stance of end clients. We may see clients choosing to stop hiring to limit their tax risk until after April 2023, so we may witness hiring freezes in some areas.
Who is responsible if my IR35 status is incorrect now but investigated after April 2023?
As it stands, your end client will be responsible for any liabilities arising from incorrect determinations between now and April 2023.
Does HMRC investigate IR35 status?
An IR35 investigation can be triggered if HMRC becomes suspicious about the status of your role. The IR35 review can be direct because your company meets the HMRC’s risk criteria or indirect due to an investigation into things like VAT, corporation tax, or payroll.
Can I re-open my Limited company or start a new one?
We expect to see a number of contractors to reverse the decision to close their Limited company or look to open a new one.
When opening a Limited company, you need to be mindful of HMRC’s targeted anti-avoidance rules (TAAR). These rules state that if you open a Limited company with the same trade within two years of closing the last you may have to revisit any tax benefits your received when closing your original company, such as the benefit of Business Asset Disposal Relief.
If I’m inside IR35 now, can I negotiate to be outside IR35 from April 2023?
You could speak with your client. However, until April 2023 the IR35 status determination and tax risk will remain with the client, so they are responsible for the determination.
Many clients stated their company policy was no longer to engage with Personal Service Companies, so many of these companies have not released a statement of their intentions after April 2023.
I’m stuck using an umbrella, what can I do?
You can change umbrella companies. However, some clients use a preferred list of suppliers. We anticipate most clients will ensure contractors still work through an umbrella company until the April 2023 deadline.
There are outside contracts available, but they tend to be fewer and more competitive.
I’m planning on leaving my umbrella, do I need to be aware of anything?
You will have contractual terms with your umbrella company, so it’s worth looking over this before providing notice. We find many contractors leave at the end of a month, so they start a new umbrella company for the following month and payslips. Best to seek financial advice on how this could impact you.
There have been reports of illegal practice with some umbrella companies, so it’s worth doing your due diligence before changing. The FCSA Accredited umbrella companies are audited to ensure they comply. A list of them can be found here - https://fcsa.org.uk/fcsa-accredited-members/
|