With the ongoing changes to the Chancellor’s mini-budget, it can be hard to keep up with the new measures and reforms affecting employees and businesses in the coming months. One development comes from the Treasury and its Growth Plan for off payroll working regulations, with the announcement that IR35 in its current form will be repealed from next April.
What is IR35?
IR35 was designed to work out whether a contractor is someone who is genuinely self-employed rather than a “disguised” employee, for the purposes of paying tax.
Is IR35 being scrapped?
IR35 is not being scrapped. After the changes go live in April 2023, IR35 will still very much be applicable. The fundamental rules of IR35 are the same – what has changed is the determination of employment status moving away from clients and back to the contractor or limited company. Businesses will revert back to the IR35 rules that were in place from 2001 until 2017 in the public sector and 2021 in the private sector.
The repeal of 2017 and 2021 changes to IR35 regulation removes a lot of the burden of compliance and risk of tax liabilities from organisations that want to use contractors. The changes place the responsibility for the determination of IR35 and the tax liability, back with the contractor and away from the end client.
However, there are still specific responsibilities that employers hold.
Firstly, any director of a personal service company (PSC) is still responsible for assessing their own IR35 status on each assignment, and accountable for paying the correct amounts of tax and national insurance contribution (NIC).
For contractors and sole traders working through an intermediary such as a recruitment agency, their employment and tax obligations are unchanged. If you’re employing their services, then as an organisation ensure to keep reviewing their tax status to avoid any tax liabilities, penalties and interest as well as employment rights like holiday pay.
Other than these salient points, not much more detail has been published on the changes ahead. For now it’s about abiding by the current IR35 rules and to take a cautious approach to expect further changes related to payments for work carried out from 6th April.
Until then, ensure to manage your IR35 risk. Businesses who pay individuals off payroll when they know they should be treated as employees, face considerable fines. For further advice and support on the current and changing IR35 do get in touch with hr inspire’s expert HR team – Hertfordshire’s leading HR consultancy.