In a move anticipated to alleviate financial burdens on businesses, amendments to the off-payroll working rules, commonly known as IR35, are set to come into effect with the start of the new tax year on April 6th.
The changes aim to rectify what has been termed as ‘double taxation’ and are expected to bring a resurgence in freelance and contract opportunities.
According to IR35 expert Qdos, the alteration in legislation will mitigate the risk of financial penalties for businesses engaging contractors.
The off-payroll working rules require businesses to determine the tax status of freelancers and contractors they employ.
However, misclassification can lead to substantial tax liabilities, with businesses being taxed more than they owe, a scenario often referred to as ‘double taxation.’
What was wrong with the previous system?
Under the previous system, businesses faced inflated tax bills, which sometimes amounted to tens of thousands of pounds per contractor engaged. This flaw in the legislation had led to a heightened perceived risk in engaging contractors, prompting some businesses to either enforce blanket bans or insist on PAYE arrangements.
The changes, announced in the Autumn Statement and confirmed to be implemented from the 2024/25 tax year onwards, will address this issue by offsetting taxes already paid by contractors against any potential tax bills levied on businesses. This legislative fix will not only prevent businesses from being overtaxed but is also expected to revitalise the market for freelance opportunities.
A flexible approach to workforce management
Seb Maley, CEO of Qdos, hailed the move as a “game-changing moment,” emphasising its potential to reduce perceived risks associated with engaging contractors. Maley highlighted that this adjustment could lead to more businesses opting to engage genuine contractors outside the scope of IR35, thereby fostering a more cost-efficient and flexible approach to workforce management.
With retrospective application, businesses embroiled in previous investigations will also benefit from the legislative fix. The anticipated outcome is a boost in confidence among businesses to embrace freelance opportunities, potentially catalysing growth in the freelance market.
The amendment marks a significant milestone in the ongoing evolution of IR35 regulations and is poised to bring relief to businesses grappling with tax uncertainties while ushering in a new era of opportunities for freelancers and contractors alike.
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.
