EXPERT SERVICES
FOR THE RECRUITMENT INDUSTRY
EXPERT SERVICES
FOR THE RECRUITMENT INDUSTRY
The government has done so many turnarounds in recent times that we’re all getting dizzy, and one issue which continues to cause confusion is the constant changes to the government off-payroll rules, also known as IR35.
In this article, we look at the history of IR35 and where the legislation currently stands.
IR35 was initially established in 1999. It is a tax legislation that is designed to stop individuals avoiding paying tax by providing their services through a limited company or other intermediary. This is known as “disguised employment”, where effectively the contractor has all the markers of being an employee but is not taxed accordingly.
This can also benefit the hiring business, who don’t have to get involved with things like National Insurance contributions and holiday pay.
In April 2017 the law changed, and for contractors in the public sector the responsibility for determining IR35 status shifted from the contractor to the end hirer, with stiff penalties for getting it wrong. In April 2021 following a 12 month delay due to covid, the legislation for the private sector followed suit, bringing both the public and private sector laws in line. This meant that companies had to spend additional time and resources determining the IR35 status of each contractor (HMRC also released a controversial tool, CEST, designed to help). As a result, many companies decided it was too risky to hire contractors and placed a blanket ban on hiring outside suppliers.
This placed huge strain on companies who now faced huge skill shortages and meant that many contractors found that they were out of work.
In short, the changes to IR35 caused, and continues to cause, a huge amount of hard work for both employers and contractors.
No. But we got close to it recently when short-lived chancellor Kwasi Kwarteng announced that IR35 reforms would be repealed in his fateful 2022 mini-budget.
The announcement caused much excitement in the contractor sector, and left critics stunned. But celebrations were quickly dampened, when incoming chancellor Jeremy Hunt reversed most of the measures outlined by Kwarteng, including the IR35 repeals.
At the time of writing, the contractor sector awaits Mr Hunt’s standpoint on the IR35 reforms and repeals. Like many of Kwarteng’s critics, Hunt felt that repealing IR35 reforms would lead to much reduced tax revenues. And with HMRC estimating that in 2019 only one in 10 people were paying the right amount of tax under the existing IR35 rules, it is easy to see why.
Critics have said that while IR35 is necessary, the problems must be addressed swiftly, the confusion is causing problems for employers and contractors alike.
But others in the contractor sector are devastated at the U-turn. Andy Chamberlain, director of independent professional and self-employed body IPSE, said “The reforms to IR35 have created a nightmare for businesses seeking to engage talent on a flexible basis, while simultaneously forcing individuals out of business altogether.” Indeed, IPSE carried out a survey in 2021, six months after the reforms, and found that 35% of freelancers had left self employment due to the changes to IR35.
At the time of writing, we are looking forward to hearing Mr Hunt’s Autumn Statement, which will hopefully provide some much-needed clarity regarding this important issue.
We at JMK are committed to keeping all our clients and contractors informed about this and other issues which affect our industry. If you have any questions at all about the current IR35 legislation, or you would like to find out more about working with us, don’t hesitate to get in touch.
Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions.
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We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.
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