What is IR35 and how is it changing?

What is IR35 and how is it changing?

IR35 - often referred to as the "intermediaries legislation" or "off-payroll" rule is a tax regulation first imposed by the Labour Chancellor of the Exchequer, Gordon Brown, in 1999. Despite all sorts of pre-election or private promises to scrap, replace or reform IR35, it’s been made worse by every government since.

It tries to differentiate the tax treatment between a genuine contractor who's in business on their own account and a "disguised employee" who would, if the contractual chain is ignored, appear to be an employee of the end-user. The effect of this is that a business "caught" by IR35 is forced to pay employee-like taxes, with a only 5% of turnover allowance for some expenses and training, whereas a business "outside” IR35 will operate under the normal company tax regime just like every other company in the UK.

At IPSE we call your clients "clients" or "end-users" or "engagers" - they are never your employer and nor are you ever their employee, even if you're IR35-caught.

At its simplest, and from April 2020, the responsibility for the decision of whether your company is IR35-caught will shift from you and your business to the end-user, and the liability for getting that decision wrong will also shift to the end-user. IPSE believe this to be wholly wrong - how can (and why should) an end-client be the arbiter of your company's tax affairs and modus operandi?

Not only will the decision-maker change but what your business has to pay in taxes will change - the 5% allowance will go, no expenses will be permitted and in some cases your business will even end up paying the Apprenticeship Levy - which other small businesses are normally exempted from. You may even end up footing the bill for Employers' National Insurance Contributions despite the fact that you're NOT their employee and they're your client, not your employer.