IR35 – what to expect in 2023
Posted on 6th January 2023
The repeal of the IR35 rules announced in September’s mini budget won’t go ahead in April 2023.
Many sectors, such as IT, have argued that these rules are making it harder, more costly and time consuming for businesses to take on flexible contractors, but the decision to repeal the rules was overturned in November’s Annual Statement.
What are the IR35 rules?
The IR35 rules were introduced for the public sector in April 2017 and were extended to medium and large private sector businesses in April 2021.
Previously, contractors could decide how they should be taxed by the organisations that commissioned them. They could self-declare whether what they did and how they did it was within the scope of the IR35 rules.
HM Revenue & Customs (HMRC) argued that some contractors were deliberately misclassifying their tasks as outside IR35 to minimise the amount of tax they paid. Roles that were classified as being inside IR35 meant contractors would be treated as employees for tax purposes and would have to pay income tax and National Insurance Contributions (NICs) as if they were permanent employees.
The IR35 rules apply if you would be considered as an employee if you weren’t working through a personal services company (PSC). So, the rules affect contractors where an organisation:
has control over how their work is completed such as working hours and where the work must take place
is obliged to give them more work once they’ve finished a task and they must do the work.
As a result, some organisations issued blanket determinations, including all contractors within IR35. They wanted to be sure they were compliant and to reduce the risk of additional taxes later if they incorrectly assessed the status of their contractors.
Even central government departments have been reviewed and fined by HMRC for making IR35 status determination errors.
Many contractors found that organisations were no longer using them because of the requirements and risks involved in applying the IR35 rules for off-payroll workers. Some see this as effectively penalising genuinely self-employed contractors who want to be their own boss.
How to handle IR35 requirements
If you use the services of contractors you will need policies, procedures, and supporting evidence that you have taken reasonable care.
Business need – using freelance and contract workers in the current economic conditions could be a good choice for your business. If your contracts are with PSCs it’s a good idea to regularly check your policies on establishing employment status.
Directors and Non-Executive Directors – make sure Directors are treated as employees where necessary.
Self-employed contractors – self-employed providers could still fall within the IR35 rules. If in doubt, check with HMRC.
Outsourced workers – make sure you have a documented PAYE and NIC due diligence process that includes services provided by umbrella companies as well as temporary employment agencies and other third parties. Check your contracts with third-party suppliers to make sure they have the correct PAYE and NIC processes.
If HMRC carries out an employment tax review of your business they will probably look carefully at your off-payroll arrangements. If you intended to contract with a personal services company but discover you actually have a contract with an individual you should review your IR35 position as soon as you can.
You should be aware that the Criminal Finances Act could apply if you have failed to prevent the facilitation of tax evasion by an employee or associate.
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