IR35 reforms – A sense of Déjà vu?
The IR35 reforms have been on something of a merry go round recently. Certainly, the last few weeks have shown us that nothing is set in stone!
Reforms to IR35 came into force in 2017 and 2021. However, during Kwasi Kwarteng’s recent brief reign as Chancellor he said these reforms would be repealed, stating that they “added unnecessary complexity and costs for many businesses”. But, when Jeremy Hunt succeeded Kwarteng, he decided that the reforms would stay.
So, is this now an end to the uncertainty, or is there more to come?
IR35 – a recap
There has been a long-running debate over the level of tax those in employment pay versus those who are self-employed.
IR35 legislation aims to deal with what is seen as tax avoidance, by individuals who are working like employees, but doing so through their own limited company – so called ‘disguised’ employees. The aim is to ensure that such workers pay the same tax and National Insurance as PAYE employees. Previously, their clients would have paid them directly into their limited company and they could then distribute company profits as dividends, which are not subject to National Insurance contributions.
A worker that falls outside of IR35 is deemed to be in a genuine business of their own and not in ‘disguised’ employment.
The IR35 reforms
The reforms were designed to tackle non-compliance with IR35 and put the onus on the end client/ fee payer to determine if the IR35 rules apply.
- From April 2017, public authorities became responsible for deciding if the IR35 rules applied to any contracted workers who provide services through their own personal service company (PSC) or other intermediary.
- From April 2021, medium and large sized clients outside the public sector also became responsible for deciding if the IR35 rules apply. Thus, they must now review every contract and decide whether it implies employment or self-employment tax status.
Will there be further IR35 reforms?
Many businesses have found dealing with IR35 reforms onerous, and the rules complex and time-consuming. It is not surprising that many are frustrated by the chopping and changing in respect of reforms, particularly at a time when there is already much uncertainty.
It remains to be seen whether there will be any further reforms or changes to IR35.
Of course, it is essential for employers to remain compliant with employment legislation. If you are unsure of the employment status of those who work with you or for you, or need any other employment law advice, contact one of our specialist employment law solicitors today.
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