IR35: What are the changes?
By Fay Capstick
This week we will be looking at IR35, the changes that last week’s mini budget introduced and what else might be needed to bring the best talent to the industry.
What is IR35?
IR35, known as off-payroll working, is a change to tax legislation bought in by the UK government in an attempt to tackle tax avoidance. It was bought into effect in stages, the first only applying to public sector workers. Since April 6th 2021 it applies to all sectors.
IR35 applies to anyone working for a client who would be classed as employed if they were not going through an intermediary, such as their own limited company.
The goal was for the government to increase tax revenue. When working through their own limited companies, contractors found it more tax efficient to pay themselves a small wage and take the bulk of their income in dividends (which attract a lower taxable rate).
Deciding whether your work falls within or outside of IR35 is a complex issue and one that we recommend that advice is taken on. No one wants to make a mistake with HMRC.
What did it mean for contractors?
The main implication is that if you had been using your own limited company before, then you will see a drop in your take home pay.
Why are contractors unhappy with it?
No one wants to see a drop in their take home pay, and this has left many contractors unhappy with the new rules. It is still legally possible to work outside of IR35, but in practice it is very hard to find any roles that are being offered on these terms.
What other problems does IR35 bring to the industry?
There are other problems too. In most cases workers using sponsored visas in order to work in the UK cannot always take on roles that they would be perfect for due to IR35 rules. This is a loss to the industry as we need to make sure that the best possible workers are able to fill roles, as this will benefit the economy as a whole.
This is impacting public and private business, as we believe that change is due in this area in order to help grow the economy and to plug the IT skills gap.
Did the mini-budget change anything?
Yes! The mini-budget in the UK last week announced changes that they hope will simplify rules surrounding IR35. The government want to grow the economy and make tax rules easier to understand.
The big change is that from 6th April 2023, changes bought in in 2017 and 2021 will be repealed. From this date workers (who provide services via an intermediary, ie contractors) will be able to determine their own employment status. This also means that they will be liable for paying the correct amount of tax and NI contributions.
However, agencies will still have to defer to their clients, many of whom will probably still insist that contractors use a FSCA accredited umbrella company.
Overall this has been greeted positively by business and the recruitment industry, who were blindsided by this unexpected change which is extremely significant.
Our take on it
We are hopeful that this change will mean that there is more flexibility in the IT workforce and that the hiring process will be simplified. It is important that workers do correctly determine their status, as no one wants to fall foul of HMRC. However overall, this change will bring a cheer and sigh of relief from many contractors in our industry who feel that the government has acknowledged and acted upon their concerns.
Final thoughts
At Parker Shaw we have been at the forefront of the sector we serve, IT & Digital Recruitment and Consulting, for over 30 years. We can advise you on all your hiring needs. If you are looking for your next job in the IT sector please check our Jobs Board for our current live vacancies at https://parkershaw.co.uk/jobs-board.