Starting from 6 April 2023, the UK Government has made the decision to repeal the off-payroll working rules (IR35) allowing contractors to take responsibility for determining and paying their own IR35 tax.
This is great news for contractors and freelancers, many of whom saw contract work opportunities dry up as businesses opted out rather than deal with the additional admin and expenses involved with taking on the tax burdens of their contractors, with some businesses even issuing an all-out ban on contractors.
What were the original IR35 changes?
The previous reforms were made in 2017 for public sector workers and 2021 for the private sector and were designed to crack down on tax avoidance, but had the effect of pushing many companies to force all contractors ‘inside IR35’ — where they are taxed as employees.
This had a pretty significant effect on freelance workers. A survey conducted by IPSE (which represents independent professionals and the self-employed) 6 months from the 2021 changes, suggested that 35 percent of an estimated 500,000 freelancers had left self-employment as a direct result of IR35 amendments.
The change lowered contractor’s take-home pay by 15 to 20 percent compared with being taxed on a self-employed basis, with the same cost to assumed to the company.
How to prepare for IR35 changes as a contractor
Contractors who are currently being taxed as employees using an umbrella company can continue to pay income tax and national insurance via their umbrella company in the new tax year, but those not employed via an umbrella company will need to manage their own payment of taxes and national insurance from the start of the new tax year.
Contractors already working outside IR35 can continue business as usual by invoicing clients and charging businesses taxes. However, it’s important to note that the responsibility to pay any potential HMRC penalties would shift from the business to the contractor.
How will businesses react to IR35 changes?
Experts suggest that big businesses may be slow to U-turn on their contractor policies, but given the demand for talent and more specifically the tech talent shortage, they may be open to freelance workers returning via a personal service company or on a self-employed basis. Smaller companies are more likely to take advantage of this change and embrace an open talent model.
Supportwave manages our community of freelance IT Professionals’ invoicing, marketing and more to enable them to operate independently as gig workers. For more information, head to www.supportwave.com/careers
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