The Chancellor has recently announced that from the 6th of April 2023, the complex off-payroll working rules will be abolished – great news for contractors!
In the past, large businesses and public sector bodies had to decide whether contractors engage as employees (in tax terms) or should be taxed under the IR35 rules. Any agencies or intermediaries in the hiring chain were always ignored when making this decision.
How Will IR35 Rules Change?
Although the underlying rules of IR35 are not being abolished, the latest changes give contractors and consultants more power. From the 6th of April 2023, the decision as to whether the IR35 will apply will be down to contractors and consultants who provide their services through an intermediary (i.e. their own service company).
With this new responsibility comes potential consequences. Getting the IR35 decision wrong can cause huge risks to contractors as HMRC demands penalties and interest on top of any underpaid tax. They can look back many years to correct the tax position, and defending your decision in court can lead to monetary, time and emotional pressure.
Nevertheless, the tax savings from working through your own business can prove hugely beneficial. Suppose the IR35 rules do not apply to you. In this instance, you can take most of your profit as dividends, as they are taxed at lower rates than earnings and do not carry employers’ or employees’ NIC.
If you are unsure whether IR35 applies to your contracts, please do not hesitate to get in touch to discuss your situation. We can also ensure that your written contract accurately reflects your working relationship with your engager.