What is Off-payroll IR35 and why is it in the news?

by | Oct 19, 2022

Confused about what’s going on with the IR35 rules? Here’s everything you need to know about the tax measures…

3 in 5 people working in the beauty industry are self-employed. Whether you’re a freelance journalist, at-home hair dresser or travelling nail technician, you’ve probably heard of off-payroll IR35. However, the Government’s yo-yoing around the rules are probably making you more confused than ever.

We did the leg work so that you don’t have to – read on to set the record straight about IR35.

Why is IR35 in the news?

On September 23rd, the former Chancellor Kwasi Kwateng announced the in-famous ‘mini-budget‘. In this, he said: ‘(We will) simplify the IR35 rules… reforms to off-payroll working have added unnecessary complexity and cost for many businesses. So, as promised by My RHF the Prime Minister, we will repeal the 2017 and 2021 reforms.’

However, the newly appointed Chancellor Jeremy Hunt MP scrapped these changes in his most recent announcement. This was one of the many measures that the government has U-turned on in the last few days.

On the change Victoria Brownlie, Chief Policy Officer, says: ‘It’s disappointing that the Government has gone back on plans to scrap IR35 rules which disincentives businesses from using self-employed contractors by placing unnecessary burden on their door instead of the individual.

‘With the service sector of the beauty industry now predominately self-employed, this creates unnecessary responsibility for busy businesses as well as stifling growth and entrepreneurship – both of which are meant to be key Conservative principles.’

But, why was the repeal of the 2017 and 2021 reforms so important? Let’s go back to the beginning.

What is IR35? 

HMRC introduced IR35 in 1999 in the hope that it would prevent self-employed people working in the same way as a full time employee under the guise of a limited company. The off-payroll working rules apply to a worker or contractor if they provide their services through their own limited company or another type of intermediary to the client.

This was introduced as freelancers operating through a private company generally pay lower income tax and don’t have to pay national insurance.

When this was first brought into law, it was down to individuals to asses whether they fell under IR35 rules and to disclose this to government.

From the 6th April 2017, public authorities became responsible for deciding if the rules applied where they contracted workers who provide services through their own intermediary.

Then, in 2021 all public authorities and medium and large-sized clients outside the public sector were made responsible for deciding if the rules apply. If people were providing work to private sectors, their intermediary is responsible for deciding the worker’s employment status and if the rules apply.

Hold on….

We get it, is confusing!

So, Kwasi Kwateng wanted to repeal the above changes to place the onus back onto workers. However, Jeremy Hunt has scrapped this, meaning they will still stay in place.

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