HMRC running IR35 consultation

IR35 is a topic that has long been heavily criticised by the self-employed sector for the reason that after many years and changes, it still remains a confusing subject for so many.

You only need to look at the high-profile cases covered in the news to see that no one is exempt from the complexities of IR35.

The likes of Lorraine Kelly, Paul Hawksbee and Kaye Adams are just some of the celebrities to face legal battles against HMRC, with the most recent cases being Gary Lineker and Eamonn Holmes.

IR35

Introduced in 2000 to put an end to ‘disguised employment’, IR35 is based on the level of risk, liability and responsibility of a freelancer.

If a freelancer is seen as having the same risk, liability and responsibility as an employed person then they will fall ‘inside’ IR35, meaning that they will be subject to the same tax and National Insurance as an employee – this will result in them having to pay more than if they were to fall ‘outside’.

As you can imagine, this is extremely problematic for self-employed professionals should they be given an incorrect IR35 status.

There’s also the fact that each contract is treated separately, which means that an IR35 status can change with each client.

Another issue faced by the sector is the fact that since 2021, the client is now responsible for deciding a freelancer’s status.

Before that, it was the freelancer themselves who would make this decision.

Unfortunately, this has resulted in many businesses blanket-assessing their self-employed workers as being ‘inside’ IR35 – this is due to some believing that it’s ‘safer’ to do so in order to avoid getting it wrong and facing questions from HMRC.

There is the Check Employment Status for Tax (CEST), which is a tool created by the government to determine a worker’s employment status, however, this is also often criticised due to it not always giving an accurate answer.

IR35 consultation

HMRC is running a consultation – ‘Off-payroll working: calculation of PAYE liability in cases of non-compliance’ – until the 22^nd of June 2023.

The aim is to set out a potential legislative change to address the over-collection of tax in cases of non-compliance with the off-payroll working (IR35) rules.

This will be of interest to:

• Those who work through their own intermediary (i.e. a personal service company)
• Medium and large-sized clients
• Public authorities
• Agencies
• Partnerships

Of course, both the self-employed and those who support the sector welcome the news that could bring in changes help to prevent double taxation; however, this has only highlighted the fact that so much more needs doing.

Many experts within the sector believe that more reform is needed, particularly when it comes to defining employment.

It is hoped that this will be taken into consideration by the government as a follow-up to the current consultation.

To find out more about contracting please contact Jessica on 01206 591 000 or email jessica.attwood@contractorumbrella.com.