The Chancellor has said that he will abolish the hugely complicated off-payroll working rules from 6 April 2023. These rules require large businesses and public sector bodies to decide whether the contractors that they engage act as employees (in tax terms) and should be taxed as such under the IR35 rules. Any agencies or intermediaries in the hiring chain are ignored for this decision.
To be clear the underlying IR35 rules are not being abolished. The only change from 6 April 2023 is that the responsibility for deciding whether the IR35 rules apply to a particular contract will revert to the contractors and consultants who provide their services through an intermediary such as their own personal service company.
The risk of getting the IR35 decision wrong can be huge for the individual contractors as HMRC will demand penalties and interest on top of any underpaid tax. HMRC can look back many years to correct the tax position and defending your decision in court can be costly in terms of money, time and emotional strain.
However the tax savings from working through your own company can be significant. If the IR35 rules do not apply you can take most of the profits as dividends which are taxed at much lower rates than earnings and do not carry employers’ or employees’ NIC.
We can help you understand whether IR35 applies to your contracts but it is essential that the written contract accurately reflects your working relationship with your engager.