FIRSTLY, WHAT IS CHANGING?
In April 2021 the government introduced important reforms to IR35 legislation. These changes, among other things, moved the responsibility for determining whether a contract is inside or outside of IR35 to the end-client, rather than the contractor. From April 2023 these changes will be reversed, and the worker will once again be responsible for determining their own employment status and paying the appropriate NICs and Tax.
WHY WERE THE REFORMS MADE TO IR35 IN APRIL 2021?
HMRC had been concerned for some time about the increased number of PSC’s not being tax compliant. From April 2017 responsibility for assessing the tax position on engagements with PSCs working in the public sector, shifted to the end-user or hirer. In October 2018, HMRC confirmed that the public sector rules will be extended to the private sector. This meant that, where engagements between the end-user and a PSC have the features of employment, the fee payer must account for tax and NIC.
WHY HAVE THEY NOW BEEN REVERSED?
Chancellor Kwasi Kwarteng explained during his mini budget on the 23rd September 2022 “To achieve a simpler system, I will start by removing unnecessary costs for business. We can also simplify the IR35 rules and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses”.
SO IS THIS GOOD OR BAD NEWS FOR FREELANCERS WORKING IN THE UK?
When IR35 was extended to the private sector a lot of companies took an initial step to no longer engage with PSC’s or to transfer their freelance community to PAYE agreements as the risk and extra charges were not commercially viable.
This had a huge impact on the professional Freelancer community as many saw their opportunities for work reduced. And for companies this meant that they were unable to engage some incredible talent.
Our initial feeling is that we hope that this announcement will see a positive change for the professional freelancer community and open up more opportunities within the creative industries.
Between now and April 2023 we will share more insight and thoughts, but if you rely on freelancers to remain creative and have any questions please get in touch.