HMRC is running a consultation into IR35 legislation with the aim of stopping double taxation under the off-payroll rules.
The Government is considering whether IR35 should be changed to ‘set off' taxes on contractors or private companies if they've been incorrectly classed as self-employed.
Under the legislation, as it stands, businesses can be accidentally classed as self-employed workers and pay tax twice. HMRC can't set off amounts of tax already paid by a contractor or their intermediary against the PAYE liability of a ‘deemed employer'.
This means that if a company is paid through its intermediary, it will have to pay corporation tax, employer National Insurance contributions (NICs), and any income tax and NICs through PAYE deductions.
Susan Ball, president of the Chartered Institute of Taxation, said:
"This consultation is welcome news and long overdue, as the off-payroll working IR35 rules have been causing headaches for workers and hiring organisations for years now."
If the consultation, which runs until 22 June 2023, is successful, the rules are expected to come into effect as of April 2024.
"This means hiring organisations may be tempted to drag their heels with any HMRC compliance checks in the meantime. Typically, a case can take 18-21 months to conclude, and we may see organisations procrastinating over any HMRC compliance checks in the hope that they can take advantage of the new rules when they are introduced," Ball added.
A welcome change
Industry leaders have long been combatting the constant changes to IR35 legislation, which has seen multiple reforms since its inception in April 2000 - so the news of a potential change is welcomed by many IR35 experts.
Dave Chaplin, CEO of IR35 Shield, said:
"Whilst this is labelled a consultation, the speed and narrow focus of the single solution reads like an announcement. The short consultation window of only eight weeks, followed by a response later this year, is a clear signal that the fix will be happening in the next Finance Bill 2024.
"The double taxation flaw in the off-payroll rules was grossly unfair on businesses who were being threatened with tax bills more than four times the perceived underpayment of tax."
Is it far enough?
Even though some are happy with the consultation's launch, others believe further steps could be taken to ensure IR35 doesn't adversely affect the construction industry.
Andy Chamberlain, policy director of the Association of Independent Professionals and the Self-Employed, said:
"We welcome the consultation and support the aim to ensure a fairer distribution of IR35 liabilities through the supply chain [although] we would, of course, much prefer to see IR35 removed completely."
Original plans, announced by previous Chancellor Kwasi Kwarteng, would have seen the two major reforms from 2017 and 2020 to IR35 removed completely as of April this year.
This was soon changed once Chancellor Jeremy Hunt made his Autumn Statement in 2022, saying no reforms would be taking place in the upcoming tax year.
Talk to us about your IR35 status.