IR35 – the government begins ‘game-changing’ consultation

Despite many attempts by HMRC to fix the system, IR35 remains a constant challenge for self-employed and independent contractors.

But a recent consultation has been described as ‘potentially game-changing’ by some experts. Read on to find out what’s under review and why this time might be different.

IR35 consultation – what’s under review?

One of the most frustrating parts of IR35 for the self-employed is the issue of ‘double taxation’. This is when a business and an individual both pay tax and National Insurance for the same job, as a result of businesses incorrectly assessing your employment status.

The government has launched an eight-week investigation into off-payroll working rules and is looking to resolve the issue of 'double taxation'.

They’re asking the self-employed and business owners to share their thoughts about IR35 for the consultation, asking 10 questions:

1. Do you agree with the taxes that would be included in and excluded from a set-off? If you do not agree, please explain why.
2. Are there any adverse impacts on the deemed employer, the worker or their intermediary as a result of HMRC estimating the amount of the set-off that would be given? If so, please provide details of these impacts.
3. Would giving a set-off have any impacts on other parts of the tax system for either the deemed employer, worker, or their intermediary?
4. Do these grounds for appeal provide sufficient safeguards for deemed employers, workers and their intermediaries where they disagree with the direction to set off amounts already paid against their deemed employer’s PAYE liability?
5. Part A – what information do you, as the client, routinely gather as part of your hiring practices for off-payroll workers? Part B – please provide your views on how easily a client would be able to obtain the above information and provide this to HMRC if requested.
6. Would allowing a set-off create any adverse incentives or changes in behaviour amongst clients, or other parties in the labour supply chain, when determining whether the off-payroll working rules should apply?
7. Do you agree with how the government intends to apply this policy?
8. We expect that businesses would need to spend time familiarising themselves with the changes. Can you provide an estimate of the costs your business would expect to incur to familiarise itself with the legislation?
9. Would asking for further information about the worker and their intermediary result in additional ongoing costs to your business? If so, can you provide an estimate for these costs?
10. Please tell us if you think there are any other specific impacts on other groups or businesses that we have not considered above.

You can email your response to [email protected]. They mentioned that while they will consider every response, they won’t be able to reply to them.

When responding, share if you’re a business owner or an individual so they understand your response.

HMRC aren’t looking for feedback on IR35 as a whole though. They’re not “seeking views on changes to the off-payroll working legislation more generally or how employment status is determined,” according to the consultation page.

What’s been the response?

The consultation is viewed as a step in the right direction, with many experts seeing the potential.

Seb Maley, CEO of tax insurance provider Qdos, said: “The double taxation of IR35 gives needlessly risk-averse businesses another reason not to engage contractors – because if they’re found to be non-compliant, HMRC will over-tax them.”

But he said “a consultation marks progress” and that it’s “potentially game-changing” for those affected by IR35.

While the consultation is a good sign, some have questioned whether it will encourage enough change.

Tania Bowers, policy director at The Association Of Professional Staffing Companies (APSCo), feels the government could be doing more to help self-employed contractors.

“We remain firm in our belief that even with this offset, the rules as they are currently written are not fit for purpose in the modern world of work,” she said.

She went on to say: “It is highly likely that many genuinely self-employed professionals are being forced to work via payroll due to clients’ over cautious approach of assessing assignments as inside IR35.”

What happens next?

There’s hope that changes from the consultation could come into effect as early as the next financial year.

Andy Chamberlin, Policy Director at the Association of Independent Professionals (IPSE), said: “We hope this measure – if implemented [from 6 April 2024] – will give clients more confidence to accurately assess status rather than continuing with blanket assessments and blanket bans, which have made running a business impossible for thousands of genuine contractors.”

The consultation closes on 22 June, so make sure you share your experience with HMRC by then.

But expectations of the consultation should be managed as HMRC has stated: “A solution to this issue may not achieve all of the [eight] objectives, and some compromise is likely to be required.”

More useful articles for the self-employed

• When should you use a proforma invoice?
• How to spot HMRC tax scams
• Dealing with social anxiety as a business owner
• What is professional indemnity insurance?

What’s your experience of IR35? Let us know in the comments below.