IR35 update: Answering your questions
In his September ‘mini-budget,’ the new Chancellor Kwasi Kwarteng dropped an IR35 bombshell, reversing recent reforms in the Public and Private Sectors.
The announcement left some contractors with important questions that we’ve tried to answer in this blog post.
From April 2023, contractors will once again be able to determine their own employment status.
This reverses previous IR35 reforms, which made Public and Private Sector clients responsible for judging a contractor’s IR35 status.
Originally, the IR35 reforms were introduced to prevent tax avoidance by self-employed workers, but Kwasi Kwarteng said that reversing the changes will “minimise the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules”.
Is this the end of IR35?
No. Limited company contractors still need to comply with IR35 rules.
The only thing that will change is that contractors will be responsible for making IR35 judgements.
Miles Grady, Director of Umbrella.co.uk, said: “IR35 will still exist next April. All that will change is who has responsibility and liability for decisions. If HMRC decides that you’ve been operating under the wrong IR35 status, then you will be liable to pay fines and unpaid taxes.”
How do I judge my IR35 status?
IR35 determinations are based on a number of factors, including:
- Who decides what work needs to be done
- Who decides when, where and how the work is done
- Whether you are obliged to accept future work from the client
- How you’re paid
- If your client gives you any benefits of expenses
HMRC’s Check Employment Status for Tax (CEST) tool is a good starting place to decide if you’re employed or self-employed, but the findings aren’t always reliable.
Can I switch from inside IR35 to outside IR35?
If a client has given you an ‘inside IR35’ determination, you should exercise caution before switching to ‘outside IR35’, unless you believe that the client applied an inside IR35 determination unfairly.
Miles said: “We’re expecting HMRC to increase IR35 enforcement action next year. And if the tax authority sees that you switch from ‘inside IR35’ to ‘outside IR35’ - with no significant change in your contract - they might want to take a closer look at you.
“Some clients will have made incorrect or unfair IR35 determinations. But if you think that’s the case then you need to be able to defend your decision to switch.”
Will these changes definitely go ahead?
There are some lingering doubts over whether these rule changes will actually be implemented in April 2023. These doubts got larger after the Tory leadership reversed its decision to scrap the top rate of tax at the Conservative Party Conference.
Miles said: “These changes are by no means guaranteed, but we’re encouraging our contractors to prepare as if they are.”
Where can I go for personal advice?
It’s important you find advice you can trust. Avoid speaking to professionals and organisations that have a vested interest in advising you one way or another.
Miles said: “Everybody’s case is unique, so it’s important you get tailored advice before making a big decision.
“At Umbrella.co.uk, we offer services to umbrella contractors and limited company contractors - so we can be more independent than other employment services companies. At the moment, the one piece of advice we’re giving to everyone is to act cautiously.”
For more information about the IR35 changes and what they could mean for you, speak to a member of the team today. Call: 01625 544 460.