Off-payroll regulation has been a point of contention for many in the construction industry, so you’d be forgiven for asking what the latest IR35 rules are.
Since 2000, there have been several developments and u-turns over the controversial legislation (and who knows – there could be more yet to come).
So, what are the latest IR35 rules? This article will explain the background as well as its current standing.
IR35: The basics
The aim of the IR35 legislation is to end tax avoidance by contractors who work “off-payroll”, essentially ensuring they pay the same amount as someone on a PAYE scheme.
Any contractor who isn’t seen as self-employed by HMRC will find themselves in the scope of IR35.
In 2017, further legislation which targeted the public sector came into effect. This means the public sector client decides the IR35 status rather than the contractor.
Then, in 2021, IR35 extended to the private sector, making it the private client’s responsibility to decide on the worker’s status. (With an exemption for small businesses.)
How to determine IR35 status
Under IR35 rules, your client (or you, if your contract isn’t in scope of the latest reforms) will be responsible for assessing your IR35 status by checking your working patterns against three main indicators.
Firstly, whether you have the right of substitution. Substitution is a contractor’s ability to provide a replacement worker to continue the service under the existing contract. If you can do this, it might suggest you’re working in a self-employed capacity.
Secondly, if there is a mutuality of obligation, which looks at whether your client is obliged to keep providing you work, and you’re obliged to complete it. This might indicate that your working situation resembles employment rather than self-employment.
Finally is the level of control in your contract. This determines whether the worker is truly independent when working under the contract. The more independent you are, the less likely IR35 will apply.
There are several other factors that apply, but these three should give you a good starting point for thinking about where you stand under IR35.
Inside IR35
If HMRC sees you as working inside IR35, you’re not self-employed (for tax purposes). This means you’ll have your tax and National Insurance contributions (NICs) deducted at source through PAYE.
Outside IR35
If you’re outside IR35, you’ll be seen as genuinely self-employed, meaning you can continue to be responsible for directly reporting and paying your tax and NICs to HMRC.
What’s happening with IR35 in 2023?
Almost unsurprisingly, IR35 rules were changed again under the office of previous Prime Minister Liz Truss and Chancellor Kwasi Kwarteng.
In the somewhat disastrous mini-budget of September 2022, the former Chancellor announced that the 2017 and 2021 reforms to IR35 would be scrapped.
It wasn’t long before current Chancellor Jeremy Hunt decided to stop the repeal of the IR35 rules, much to the annoyance of contractor groups.
Currently, there’s no certainty as to whether further reforms are on the horizon (or even a review of the rules as discussed by Truss in 2022), so contractors will still have their status decided by their public or private end client.
Knowing your obligations
IR35 has been a confusing and tumultuous set of rules to say the least, with constant chopping and changing making it hard to keep up.
That’s why we advise our clients working in the construction industry or as contractors in other sectors to get in touch to discuss their contracts. We’ll help you figure out how to report your tax (if it’s your responsibility to), file your returns and pay your bills on time.
Get in touch to discuss your IR35 status.