What freelancers need to know about the scrapping of IR35 reform
On Friday 23rd September 2022, Chancellor Kwasi Kwarteng announced that IR35 reforms were to be reversed. This came as a big surprise to most who expected a review at best. The details were published in the Treasury Growth Plan. In short, IR35 liability shifted back to the contractor. In 2017 public sector organisations became liable for determining whether a contractor would be inside or outside IR35. In 2021, medium and large enterprises in the private sector became liable. This resulted in many companies cutting contractor workforces and many contractors closing limited companies and taking permanent jobs or taking inside IR35 roles.
Genuine freelancers and side-giggers are likely to be less of the focus but it is important to ensure you know the details of what the scrapping of reforms mean and work with partners who will help keep you right.
We have been asked many questions by our community over the last few days about what freelancers need to know about the scrapping of IR35 reform so we thought we would publish some our answers to them:
What is IR35?
Contractor Calculator describe it well:
“IR35 is a word used to describe two sets of tax legislation that are designed to combat tax avoidance by workers, and the firms hiring them, who are supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used”.
IR35 has been around for over 20 years and is not new to experienced contractors.
Is IR35 dead?
No, and this is where contractors need to be careful. The Treasury Growth Plan states the following:
“The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.”
Genuinely self-employed contractors will be able to operate outside IR35 without any difficulty going forward. They will, however, be the focus of IR35 investigations once again.
If I have been working inside IR35 does that mean I will still be deemed inside?
This is still unclear at the stage and seeking advice from a tax expert is highly recommended.
When do the rules change?
The key date is 6th April 2023 is the key date when IR35 will return to pre-2017 rules. Until then everything stays the same and it is important to ensure any new projects are determined inside or outside IR35.
What should I do to stay compliant when reforms are reversed?
Penny Simmons from Pinsent Masons notes that:
Contractors will once again be responsible for compliance and payment of tax. Businesses will remain exposed to tax risks by virtue of other tax rules and the corporate criminal tax offences – if they pay contractors off-payroll when they know that the contractors should be taxed as employees.
Here is a reminder of the key status indicators that will once again fall onto the contractor:
- Right of Substitution
- Mutuality of Obligations
- Financial Risk
The rise in on-demand remote work talent solutions such Fiverr, Gigged.AI, and Upwork will definitely help freelancers find work that will help keep them compliant especially coupled with IR35 reviews and insurance solutions such as IR35 Shield, Qdos and Worksome.
Join our freelance talent community to network with fellow freelancers, receive the latest gigs from Gigged.AI and exclusive offers from our curated partners including discounted IR35 insurance. Click the link to join: https://lnkd.in/eGZjaKm7