*IR35 is a piece of UK tax legislation. It’s designed to close a loophole in the tax system where workers could use the setup of a limited company structure in order to pay less tax*
Last Friday, Chancellor Kwasi Kwarteng announced plans to simplify the IR35 reform. He commented, “reforms to off-payroll working have added unnecessary complexity and cost for many businesses”.
This brought great news to the contracting community, but caution should be taken as contractors may have misinterpreted the chancellor’s announcement. To clarify, the IR35 reform will not be repealed but will continue to exist. Rather, the rules have changed.
The IR35 tax status determination responsibility will return to the individual providing their services rather than the businesses benefiting from their services.
This benefits contractors by allowing them to determine their own employment status. The chancellor states that this will “minimise the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules”.
Although HMRC will still be enquiring into personal service companies and their engagers, under the IR35 rules. So, this adds complexity to the determination of the employment status of the individual worker. Particularly, what will the difference be in the taxes paid for the different statuses. Evidently, without a thorough review, there runs a risk of non-compliance.
There is also the fear that the removal of the off-payroll working rules will force low-paid agency workers to work through limited companies by agencies or umbrella companies. This may become problematic if individuals lack understanding of how legal entities operate, leading to compliance issues.
The future of IR35 is uncertain and there is a risk that contracting could revert back to the old days whereby the rules were disregarded, and limited companies were used by agency workers to reduce their debts and increase profits.
If you are uncertain about the latest news or want to know more about contracting, give our contracting team a call today!
