With the new tax year starting earlier this month, there has been some confusion around IR35 following the Governments reversal of its repeal and what this means for businesses.
You will undoubtedly remember last year when the Government announced changes to the off-payroll working rules (often referred to as ‘IR35’). Some businesses felt relief when Kwasi Kwarteng (the then Chancellor) announced in his mini budget that he would repeal the rules on 6 April 2023. However this was short-lived and just two weeks later, Jeremy Hunt, upon his appointment as Chancellor, announced during his Autumn financial statement the repeal of the IR35 rules would not be going ahead.
As things stand, this complex area of law continues in force and businesses need to be aware that it is not being repealed and how this affects them.
HMRC implemented the IR35 rules to ensure that individuals working like an employee but under the cover of a limited company would pay similar Income Tax and National Insurance as an employee.
For contractors working with public sector bodies or medium to large sized clients in the private sector, the employer is responsible for determining whether the contractor has deemed employment status. Small businesses are exempt, and so the contractor will be liable for determining their employment status.
The rules apply differently depending on the size of the business. However, as a business, it is vitally important that the correct decision is made regarding the assessment of individuals operating through an intermediary.
If a contractor does have deemed employment status, they have not met HMRC’s definition of self-employed and would therefore be subject to similar levels of Income Tax and National Insurance, which the employer will be responsible for deducting it.
If a contractor does not have deemed employment status, then they have met HMRC’s definition of self-employed and would not be subject to the same levels of Income Tax and National Insurance as an employee.
If you need assistance determining employment status or would like further information on this topic, please get in touch with our Employment team.