Changes to IR35
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Changes to IR35

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At the end of 2014, we wrote a blog post explaining IR35 and demystifying your rights as a freelancer, and this one, in December 2016.

IR35 rules aim to tax ‘disguised employees’ who are working through their own company (personal service company/PSC) and using the tax benefits that are available but are still working in a similar or identical manner to that of other employees.

Since those posts, IR35 legislation has changed dramatically – with more to come.

The number of self-employed workers in the UK has been increasing since 2001 – the self-employed now account for about 15 per cent of the working population – and in broadcast, an industry in which a freelance workforce has always been sizeable – news regarding changes to IR35 legislation is a significant change.

2017 changes

‘Off-Payroll’ changes to IR35 rules were made to public sector organisations from April 2017.

Prior to that point, the onus was on the worker/PSC to determine whether he or she fell inside or outside IR35 rules, whether directly engaged or agency-engaged with their client, which made it difficult for HMRC to police.

As a result, HMRC had a poor success rate in challenging such determinations.

From 2017, however, that obligation was shifted by the government to make clients – the company benefitting from an individual’s work – responsible for both deciding whether a contractor is inside or outside IR35, whether he or she is engaged directly or through an agency, and deducting income tax and employee national insurance.

HMRC now audit public sector organisations to test the accuracy of their determinations.

The 2018 Budget

Negative sentiment towards the off-payroll rules ran high as the Chancellor prepared to deliver his Budget last year. Uncertainty regarding the expansion of the rules to the private sector was as unwelcome as the uncertainty surrounding Brexit.

But an expansion of the rules was indeed extended to the private sector:

...but there was a silver lining:

The off payroll working rules - known as IR35 – are designed to ensure fairness so that individuals working side by side in a similar role for the same employer pay the same employment taxes. Last year, we changed the way these rules are enforced in the Public Sector. But widespread non-compliance also exists in the private sector. So following our consultation, we will now apply the same changes to private sector organisations as well.

...but there was a silver lining:

...After listening carefully to representations made during the consultation, we will delay these changes until April 2020 and we will only apply them to large and medium-sized businesses. (source: gov.uk)

Philip Hammond’s announcement was the single-largest revenue-raising measure delivered in the Budget.

Contractors were already feeling the heat...

Contractors supplying clients, it was found around the time of that speech by the Chancellor, were unequivocal in their ire. One survey last year found that 80 per cent of contractor respondents believed that public-sector IR35 has had a “very negative” impact on the UK, 42 per cent said that they’d increased their rates as a result of the 2017 Off-Payroll implementation, while 90 per cent of respondents reported feelings of ‘stress,’ ‘worry’ and even ‘anger’ over the legislation’s introduction in the public sector.

The move to delay the introduction to the private sector was welcomed by IPSE, the Association of Independent Professionals and the Self-Employed (among others) as a positive step:

We are pleased that businesses are going to be given more time to prepare for this. ...The rule changes have caused serious problems in the public sector and we can only imagine that it will go on to cause very serious problems in the private sector.

Further reaction (source)

  • “The public sector rollout has not gone smoothly”
  • “No evidence to date that ‘off-payroll’ rules have worked in the public sector”
  • “It will be important for the government to use the period between now and April 2020 to address the problems that are present in the current scheme that applies to the public sector”
  • “Reform of the IR35 rules is seen as a less politically controversial way to raise money for the Treasury in the absence of parliamentary support for an increase in National Insurance Contributions (NIC) from the self-employed”

Transport for London said that “a significant number” of vital contractors to have deserted its operations as a result of changes to IR35 in the public sector.

Further reading:

We’ll be looking into the IR35 issue further in the coming months as companies adjust their ways of working so watch this space.