The start of the new tax year on 6th April brings with it long-awaited changes to the off-payroll working rules that could prove to be the “catalyst” for more freelance and contract opportunities, IR35 expert Qdos has said.
Amendments to the off-payroll working rules will prevent businesses from being ‘double taxed’ in the event of non-compliance when engaging these workers.
It has been hailed as a “game-changing moment” in the history of the legislation by Qdos, which also said it could “spark life” back into a market that has suffered as a result of the introduction of the off-payroll working rules in the public sector (2017) and private sector (2021).
Under the off-payroll working rules (often referred to as IR35 reform), businesses are responsible for determining the IR35 status (tax status) of freelancers and contractors they engage.
If they incorrectly class a contractor as self-employed when their employment status reflects employment, these businesses can be left with tax bills made up of employment tax that should have been paid as part of the assignment.
However, when calculating this liability, HMRC doesn’t offset the tax already paid by the contractor (income tax, dividend tax, corporation tax) on that engagement. It means businesses are taxed more than they owe.
It has led to the phrase ‘double taxation’, with businesses facing inflated tax bills, often amounting to tens of thousands more per contractor engaged.
This flaw in the legislation has increased the perceived risk of engaging contractors, with many businesses opting to blanket ban contractors or insist they operate via PAYE in response to the introduction of the off-payroll working rules.
For example, a population of 500 contractors over a 3-year period would likely have paid over £50m in corporation tax and dividend tax. This will now be offset from any tax bill levied at private sector businesses.
Having previously consulted on the issue, the government confirmed in the Autumn Statement that this legislative fix would be introduced from 6th April (2024/25 tax year) onwards. It will also apply retrospectively, meaning businesses caught up in investigations will benefit.
Qdos CEO, Seb Maley, said, “Make no mistake, this is a game-changing moment and one that significantly reduces the perceived risks associated with engaging freelancers and contractors.
“In simple terms, businesses won’t be overtaxed by tens, potentially hundreds of thousands of pounds for every contractor they engage under the wrong IR35 status.
“This long overdue fix will have big implications for independent workers too. With the end of double taxation, I expect more businesses to engage contractors outside the clutches of IR35 – something that many had decided against following the roll-out of the off-payroll working rules.
“So while relatively small, this legislative change should give businesses the confidence they need to engage genuine contractors in the most cost-efficient and flexible way. It’s not an overstatement to say that it could spark life back into the market, becoming a catalyst for more freelance opportunities.”
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