Despite a series of tax hikes introduced this month, on the second anniversary of the IR35 reform for the private sector, the legislation continues to top contractors’ minds.
The arrival of the 2023/24 tax year and with it a host of tax increases affecting the self-employed and contractors does not detract from the fact that IR35 legislation remains a prominent concern for these workers, research from an IR35 specialist Holy reveal.
Despite the increase in corporation tax (increased from 19 to 25%), the reduction of the income tax threshold at an additional rate (from £150,000 to £125,140) and the cut in the allowance for tax-free profits (£2,000 to £1,000), no Contractors still see IR35 as the biggest threat to their business.
More than one in three contractors out of more than 700 contractors surveyed by Qdos see IR35 as the issue most likely to negatively impact their business. This is before concerns about the cost of living and the range of tax increases offered for the 2023/24 tax year (25%).
An overhaul of the IR35 rules was introduced in the public sector in 2017 and in the private sector in 2021. The changes have made clients of the self-employed become responsible for determining the tax status of those workers, unless the freelancer is employed by a small business.
In last year’s mini-budget it was announced that the rules for working outside payroll would be scrapped from the 2023/24 tax year, before a newly appointed chancellor, Jeremy Hunt, overturned that decision. Only 7% of contractors surveyed by Qdos are “confident” that the repair will be canceled in the future. 43% are “not at all confident” and 39% are “not completely confident.”
On the second anniversary of the initiation of reform in the private sector – and six years since the changes were implemented in the public sector – Seb Malli, CEO of Qdos, said: “The tax burden on small businesses in the UK is mounting so far it is the IR35 that worries freelancers and contractors the most.” – That’s saying something The government’s heavy-handed way of handling IR35 compliance has put freelancers and their clients on edge.
“HMRC has a scattershot approach to IR35 compliance, pursuing cases for years only to discover that the freelancer did nothing wrong. Take Gary Lineker, who HMRC wrongly believed owed £4.9m in tax. Same goes for Adrian Chiles, who had a £1.7m IR35 bill hanging over his head.
“With rules enforced outside of the payroll system, HMRC is ramping up compliance activity among businesses. And if the tax office’s monitoring of IR35 among freelancers and contractors is something to do, compliance must remain a priority for organizations that engage these flexible workers.”