The long-awaited repeal of the 2017 & 2021, IR35 (off-payroll) reforms

In Friday’s shock announcement by the Chancellor of the Exchequer,? Kwasi Kwarteng , it was announced in the House of Commons that the?2017 & 2021, IR35 reforms for both public and private sector temporary workers will be repealed.

As a contractor myself long before the 2017 changes, this is a welcomed move?by The Conservative Party , as it will once again give workers the freedom and flexibility to determine their own employment status for tax purposes. For those who started contracting after the 2017 changes, tough choices will need to be made in the run up to April 2023.?

The recent announcement means a workers employment status will no longer be determined by the end client (in the case of Business Smart Solutions contractors, the Local Authority), but the individual doing the work. I am sure this is welcome news by all, as it simplifies the hiring process for the client, who in many cases would implement a blanket ban on outside of IR35 contracts due to the complexities involved, and overall fear of making an incorrect employment determination.??A contractor or temporary worker has always been best placed to determine their own employment status based on the nature of the work and other determining factors such as working pattern, location, and pay frequency which a temporary worker needs to consider before accepting an assignment.

In the Governments ‘2022 Growth Plan’, paragraph 3.44 states:

"The Growth Plan sets out first steps in taking complexity out of the tax system. The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from?6 April 2023. From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of?Tax and National Insurance contributions. This will free up time and money for businesses that engage contractors, that could be put towards other priorities. The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules"

What does this really mean for me as a contractor or temporary worker, and what are my options?

For those of you working via an FCSA accredited umbrella company, nothing needs to change if you don’t want it too.??If you are happy with the reassurance that all tax, national insurance and any student loan deductions are taken care of and want a payslip at the end of each week, you can simply deem your assignment inside of IR35 and continue as you are.??The downside of this, is that you are essentially paying more tax & national insurance than you need to, as your umbrella company who acts as your employer is liable for both employers and employees’ deductions.

Pre-2017 temporary workers will remember the days of limited companies.??If a worker deems themselves outside of IR35, you will once again have the option to incorporate a limited company, and have your income paid direct to that company. It is then the company’s responsibility to pay its workers (i.e., you), whether that be via a salary which will need to be reported and submitted via the HMRC Real Time Information (RTi) tool or via director dividends.??As a company director, you will also need to complete an annual corporation tax return, an annual companies house return, periodic VAT returns (if you choose to register for VAT) and finally an annual self-assessment for you (the individual).

Those of you with experience of running a limited company, since the 2017 IR35 reforms, you will have the added responsibility of submitting all HMRC salary payments in real-time via the free HMRC RTi tool, or via a 3rd?party system. Payments not recorded on time will be subject to tough penalties after an initial warning, something I have personally become foul of when I was first introduced to RTi.

Things to consider before incorporating a Limited Company:

The Pro's:

• If calculated correctly, the first ￡12,570 of profit can be allocated to your personal tax allowance, therefore not liable for tax & national insurance deductions
• Every company director is entitled to an annual ￡2,000 tax free dividend allowance.??Dividends payable over ￡2,000 attract a much lower tax rate than PAYE payments
• You do not pay national insurance on dividend payments
• Business related expenses can be used to off-set your pre-tax profit, therefore reducing your overall corporation tax bill
• Remaining profits liable for corporation tax, attract a lower tax rate than PAYE payments?
• Registering for VAT can financially benefit you, if you regularly spend on business related expenses, by reclaiming the VAT back from the government (currently 20%).??If you do opt for VAT registration, once registered, all invoices you send to your agency who do not operate a self-billing scheme will need to include VAT, which you need to report (and repay where necessary) on your quarterly VAT returns.??If you rarely have business related expenses such as accommodation or travel costs, there is no benefit to be VAT registered. If you are considering registering for VAT, seek guidance from your accountant or tax advisor first

The Con's:

• The responsibility and actions you must take within strict timescales as a limited company director are vast. Financial penalties will be incurred if you do not meet your legal obligations, on time. As a newbie director, there will be times where you won’t realise your statutory responsibilities until you have received a financial penalty in the post
• Every company must have a registered office.??You do not want this to be your home address, likewise you want to avoid having your individual name within your limited company name, minimising personal liability should all go wrong. There are companies out there who can provide a registered office address, for a cost
• You will need an accountant or qualified tax advisor to complete your annual corporation tax return. The cost of this can span from ￡500 - ￡1,000 per year.??You may also want your accountant to complete your annual companies house return, quarterly VAT returns and self-assessment return. This all comes at a cost
• Most company directors pay themselves a minimal salary to avoid personal tax & national insurance deductions.??As a company director, it is common practice to pay yourself an annual salary equivalent to your tax & national insurance allowance (currently ￡12,570 per annum / ￡1,047.50 per calendar month). By maximising your tax allowance first, you are reducing your overall corporation tax bill. If you are not confident in reporting your own salary payments to HMRC via the RTi tool, your accountant can do this for an additional cost. The RTI tool can also generate payslips, P60’s and P45’s.?(Tip: when calculating your monthly salary to report to HMRC, do not get this confused with the national living wage requirements)
• As a limited company director, you are also an employee of your own company. It’s important not to merge the two entities as this can cause confusion when dealing with tax affairs; for example, ensure business related purchase are made from business funds, not personal funds
• Every limited company requires a business bank account. The majority of business bank accounts charge a fee, either a one-off monthly fee, or fee per transaction. Most new companies qualify for free business banking for an introductory period

How do I determine my own IR35 status?

The government has a simple to use tool that lets workers, agencies, or end clients determine IR35 status for an assignment -?https://www.gov.uk/guidance/check-employment-status-for-tax?-??As a worker, from April 2023, if you deem your assignment outside of IR35 using this tool, you can operated via a limited company. It is important to use this tool each time you start a new assignment.

What’s next?

If you deem your assignment outside of IR35 from April 2023, all you can do is to review your options.??The announcement by?Kwasi Kwarteng was a proposed change and is yet to be made a legislative change. If you are currently working with Business Smart Solutions , one of our team will be in contact with you in the new year to discuss your payroll requirements.

For any queries relating to IR35, questions are welcome to myself, Ben Moreton or any member of #teambss. Our partners at Umbrella.co.uk also offer a limited company payroll solution.??For more details on this, please contact Liam Bradshaw .

https://www.businesssmartsolutions.co.uk/candidates/payroll-solutions