Good news for UK tech contractors as govt repeals IR35 tax rules
- Reference: 1663931113
- News link: https://www.theregister.co.uk/2022/09/23/uk_government_to_repeal_ir35/
- Source link:
Speaking during his "mini-budget" in the House of Commons today, chancellor of the Exchequer Kwasi Kwarteng said reforms to the off-payroll working had added unnecessary complexity and cost for many businesses.
"As promised by the prime minister, we will repeal the 2017 and 2021 reforms. We will continue to keep compliance closely under review," Kwarteng told MPs.
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IT contractors may be relieved the reforms to the tax rules (in both the private and public sector) are set to be repealed but would be forgiven for being bewildered at the U-turn and the needless paperwork accommodating the changes have introduced.
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New IR35 rules were introduced for businesses in April 2022 following a year's delay caused by the COVID-19 pandemic. They put the onus on determining tax status on employers, some of which were unwilling to accept the risk and put blanket bans on the use of contractors. The rules were introduced in the public sector in 2017.
What is IR35?
IR35 is a reform unveiled in 1999 by the UK tax authorities. The latest regulation change – which came into force in April 2021 – forced medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.
Contractors found to be within the scope of the legislation – i.e. inside IR35 – will have to pay more tax than they might expect.
The reforms are part of the government's crackdown on so-called disguised employment, where workers behave as employees but are able to slash their tax bills by billing for their services through Personal Service Companies (PSCs), which are taxed at lower corporate rates.
The measures first came into effect in the UK public sector in 2017. The British government hoped the reforms would recoup £440 million (c $486 million) by bringing 20,000 contractors in line.
HMRC reckons that only one in 10 contractors in the private sector who should be paying tax under the current rules are doing so correctly. It estimates the reforms will recoup £1.2 billion (c $1.33 billion) a year by 2023. Both public and private sector reforms are now set to be repealed.
Commenting on the move to repeal the legislation, Dave Chaplin, CEO of tax compliance firm IR35 Shield, said contractors would be celebrating the government announcement.
"These onerous reforms were never going to work and were flawed from the start. The new version of IR35 has simply served to pour glue on the economy and prevent growth. The Chancellor has done the right thing and removed an unnecessary burden for firms of trying to solve a complex riddle every time they hire a worker."
[4]How important are tech and other contractors to UK? PM candidate promises tax review if elected
[5]UK government having hard time complying with its own IR35 tax rules
[6]Court of Appeal ruling offers hope for UK umbrella firm workers chasing holiday pay
[7]Brocade wrongly sacked award-winning salesman who depended on company insurance for cancer treatment
But Penny Simmons, legal director at law firm Pinsent Masons said the government's decision does not necessarily mean the end of the IR35 story.
"The rules will still exist – it's just that contractors will once again be responsible for compliance and payment of tax. Businesses will remain exposed to tax risks if they pay contractors off-payroll when they know that the contractors should be taxed as employees by virtue of other tax rules and the corporate criminal tax offences."
She pointed out that the chancellor has also said the government would keep compliance under review.
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"The rules were changed because HMRC thought 90 percent of contractors weren't applying the rules correctly – so if HMRC thinks this is still the case, we may well see further changes, albeit in a different form," she said.
Over in the US, there are [9]two main types of contractors : those who fall under 1099 (Form 1099-Misc), and those who fall under Form W-2, with the latter being similar to IR35 in the UK. However, there are major differences. According to contractor and freelancer news site, contractor.com, the main difference is "in the UK, the contractor is financially punished if found to be a disguised employee, whereas in the USA, it's the client that is penalized. ®
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[4] https://www.theregister.com/2022/08/22/liz_truss_ir35/
[5] https://www.theregister.com/2022/05/26/mps_slam_ir35_government_rollout/
[6] https://www.theregister.com/2022/02/02/court_of_appeal_ruling_offers_hope/
[7] https://www.theregister.com/2022/02/02/brocade_salesman_unfair_dismissal_tribunal/
[8] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Yy3YHJV00hkwQFhWAOnFpAAAAJM&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[9] https://www.irs.gov/forms-pubs/about-form-w-2
[10] https://whitepapers.theregister.com/
Re: Wake me up
Sure thing, if the British economy hasn't collapsed by then and people survive by trading goods and services for goats.
Re: Wake me up
As long as I can avoid some tax on my goats I dont care.
Re: Wake me up
are you just milking this thread?
Re: Wake me up
Oh, thats a baaaaaa-d joke.
Re: Wake me up
But the cheese is good.
Re: Wake me up
Wake me up when all the companies which switched to only hiring through umbrella companies switch back again.
Does this rule not apply to public sector, though? It wasn't clear I thought.
Yes
They announced the appeal of the client status determination in both the public and private sector.
Bad news for the umbrella companies, good news for small local accountants.
I trust my local MP, who has repeatedly defended the rules by telling me a civil servant told them it was a good idea, will promptly send me an email apologising for their mistake.
Hahahahahahahaha.... *sigh*
Write to them asking for the civil servant to be fired.
Civil Servants simply apply the policy. Fire the MP and SoS for this.
Im going to go back through my old forum posts where people were gloating about the reforms back in 2021 and ask their opinions.
*Smug Mode Enabled*
Bad for permie's
as a permie I have noted that more of my contractor colleagues have come across to permit and with strong salaries. Meaning there are a number of strong salaried permit jobs around.
being in reach of 6 digits while being a permie is an interesting space to be in.
Re: Bad for permie's
I don't know what you're trying to say here?
Its bad for permies because there are more well paid permie jobs around?
Re: Bad for permie's
It will be when the employers figure out they only need that 6-digit worker for 6 months of the year, and they can save 10k in NI
Re: Bad for permie's
If they no longer need guys on the full payroll they will stop advertising for permies on good salaries and just go back to contractors again.
New IR35 rules were introduced for businesses in April 2022...
Funny, I could swear I've been subject to IR35 since 2020.
Pretty sure IR35 came into effect back in 2000 and was reformed in 2016 and 2021.
Good news and a triumph for common sense
I worked for myself for a little while, my primary motivation being to get away from working "for" an organisation run by incompetents and having to defend them in public. At the time I determined by IR35 status, but I was clearly working outside IR35 and should clearly be seen as such under the recent rules.
I stopped work before the new rules, but could well have been caught up in them, especially when working for the risk-unaware public sector. In my case I'd have declined to work under a contract inside IR35, but I didn't need the money, and lots of people got sucked in with no choice.
There will always be a problem here, and I worked with people who worked as "contractors" who were clearly working as if they were employees. But the last rounds of changes to IR35 rules for the public and then private sectors have not been the solution.
The solution is probably to double the number of people working for HMRC and increasing the penalties on individuals who deliberately say they're not inside IR35 when they should be. But most of that's probably not going to happen. However, even acknowledging that, the way it used to work was better than the way it's changed recently, knowing that some people lie and get away with it is better than the bureaucratic clap-trap that's been attempted since 2017.
Re: Good news and a triumph for common sense
Finding contractors who are really employees should be fairly easy, just ask them for a list of contracts for the past 5 years.
Re: Good news and a triumph for common sense
The problem wasn't / isn't the individual contractors, it's always the hiring business doing it wrong. Rather than offering a contract to work on a problem and then continuously rolling it, the business should have discretely named projects which the contractor can work on, on a per project basis. My experience of this is that businesses are often too lazy (read: too disorganised) to plan that far ahead and organise things into project units, but ultimately the work I have produced in such environments could be broken down into individual projects. It's this lack of paperwork area that leads people into thinking contractors are doing it wrong, but the reality is that businesses bring in contractors for a reason, and that reason is usually the immediate skill availability. They just really suck at sorting themselves out; e.g. a 2 year transformation project has rolled into its 5th year, the business has 6 monthly budgets and the hiring team don't know if the money is there to keep them on and are tied with decisions, etc. When IR35 came in a great many businesses just changed all of their positions to umbrella or permanent, often with reduced overall tax payments when added up. This, coupled with the sudden drop in morale and COVID causing an absolute storm in the sector which, if you've looked at job boards recently you'll see still hasn't recovered, means that overall the IR35 reforms I suspect were a completely pointless exercise.
Let me get this straight
IR35 is being revoked.
But the rules are not being revoked.
Instead of bashing everybody over the head with it, we shall only bash IT contractors - as and when we can catch them, which is around 10% of the time.
This will liberate the economy.
Can you just run that by me slowly again?
Re: Let me get this straight
to be clear, most people around these parts think that only IT contractors suffered under IR35 but that's because this is an IT site and IT contractors are/were fairly highly paid therefore drew headlines.
IR35 affected - and will continue to affect - loads of different industries. Medical locums, journalists, agency nurses, engineers, designers, graphic artists. social workers and loads of other people with their own businesses, even down to the guy with the sandwich trolly on board a train. Its effects are widespread.
"The new version of IR35 has simply served to pour glue on the economy and prevent growth."
Much like the original version which is still in place.
Excellent
Finally U.K. is a flat rate simple tax economy.
The fact the lefty’s are absolutely frothing at the mouth convinces me this is great news
Re: Excellent
Flat rate, simple tax economy?
As your income increases, the effective tax rates are 0%, 20%, 40%, 60%, 40% then 45% currently. Sure the 45% rate is being dropped and the 20% is dropping to 19% - but we will still have a scale that goes 0%, 19%, 40%, 60% and finally 40%! It's bonkers.
Over in the US, there are two main types of contractors:
those who fall under 1099 (Form 1099-Misc), […]
For reporting payments to non-employees, Form 1099-MISC was replaced by Form 1099-NEC starting in the 2020 tax year. (HIstorically, Form 1099-NEC was itself replaced by the then-new Form 1099-MISC in the early 1980s.)
Wake me up
on April 6, 2023.