The Repeal of IR35 Reforms: Bad News for Contractors

For start-ups and SMEs, the recent repeal of IR35 reforms is very disappointing news. The changes would have helped to level the playing field between contractors and salaried employees by making it harder for companies to wrongly refuse to hire self-employed workers through Limited Companies. But now that the legislation has been revived by the Government, it's back to business as usual for many firms who will continue to insist on using umbrella companies for consultants and other temporary workers.?

IR35 explained

Off-payroll working rules, also known as 'IR35', are the rules to make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees.

The rules apply if a worker provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly.

Off-payroll working rules apply on a contract-by-contract basis. This means that a worker may have some contracts that fall within these rules, and others that do not. It all depends on how each individual contract is set up. Visit gov.uk for more information.

?Who is affected by the rules?

• A worker who provides their services through their intermediary
• A client who receives services from a worker through their intermediary
• An agency providing workers’ services through their intermediary

The recent revival of IR35 is disappointing news for contractors

The Government’s short-term announcement that they would review IR35 reforms opened an opportunity to level the playing field between employees and contractors, and to give more flexibility for businesses to hire consultants through a Limited Company structure. However, Jeremy Hunt has scrapped the plans, claiming that they would have put too much burden on businesses. This is a blow to contractors who were hoping for a fairer deal from the government.

The changes would have made it harder for companies, and HMRC to wrongly classify consultants as employed workers

The government has now scrapped this review, despite widespread support from within the contracting community. This is a disappointing turn of events that will leave many feeling let down by the system.

Although the revival of IR35 is a huge blow to small businesses, and one that could have easily been avoided, there are still strong grounds for consultants to defend themselves from HMRC and over-zealous HR managers within their client companies. Speak to us about your IR35 compliance, and how we can help you navigate the new old normal.