How will IR35 changes impact you?
What does the recent announcement - IR35 will be repealed from April 2023 - mean for you? Is IR35 being scrapped? Or is IR35 still applicable in 2023?
To clarify IR35 is not being scrapped. The changes in April 2023 will still very much be applicable. The fundamental rules of IR35 are the same – what has changed is the responsibility of determining the employment status, moving away from clients and back to the contractor or limited company.
If you are a contractor operating through your own limited company, then IR35 should be no news for you. It has been around for some time in the public sector.
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.
What is changing?
Currently (from 6 April 2021) it is the responsibility of the “end-user” for applying the off-payroll rules to contractors. If an individual is ‘inside’ the rules, it is the responsibility of the ‘fee payer’ to make the appropriate deductions as required by HMRC, such as income tax, employer and employee NIC and the apprenticeship levy.
The current, Chapter 10 rules will remain in place until April 5th 2023 and any work done up to that date, even if invoiced and paid after April 6th 2023, is subject to the client determining the status.
Have a look at the below flowchart for guidance:
From 6th April 2023 the responsibility for the determination of IR35 and the tax liability, goes back to the contractor and away from the end client.
What does it mean to you?
If you are providing services to small companies of businesses based wholly overseas with no UK presence – nothing changes.
If you are providing services through your limited company to large medium/organisation with UK presence then from 6th April 2023 it will be your responsibility to determine your tax status.
But with independence comes responsibility. Under the private sector off-payroll working legislation, the onus was on the end client to demonstrate reasonable care.
What do you need to consider now?
To demonstrate reasonable care, you need to consider the contractual and the actual working arrangements. These two elements must be aligned.
Although HMRC have a tool (CEST) to determine employment status, here are the various aspects of a contract which you need to consider to determine if as a contractor you are employed or self-employed, including:
- Control: do you decide your own hours of work, and have control over how and when the work is carried out?
- Right of substitution: are you able to appoint another person to carry out the work if you are not available? Would you pay the substitute yourself, and cover any necessary training costs? If you were to provide a substitute would the client accept them?
- Mutuality of obligation: is there an obligation for your client to offer you work, or for you to accept an offer of work if given?
- Employment rights: does the contract mention employment rights such as holiday or sick pay?
You will also need to consider if the organisation you are working with provides the equipment to carry out the contract, for example computer or video editing hardware, the level of financial risk you take on, and the ‘length of engagement.’
What about access to the building? Are you using a security pass along with your client’s employees – even using the staff canteen could be held against you during an IR35 tax investigation.
To summarise, although the change won’t be in place until April 2023, now is the time to review your working practices.
Do you need your contract reviewed for IR35? Contact us on 0333 050 5658 to discuss it further.
Get in touch
We can be next to you, every step of your journey, to meet your changing needs