Despite the raft of tax hikes introduced this month, on the two-year anniversary of private sector IR35 reform, the legislation still tops contractors’ concerns
The arrival of the 2023/24 tax year and with it an array of tax increases impacting freelancers and contractors does not detract from the fact that the IR35 legislation remains these workers’ stand-out concern, research from IR35 specialist Qdos reveals.
Despite the increase to Corporation Tax (increasing from 19 to 25%), the reduction of the additional-rate income tax threshold (from £150,000 down to £125,140) and the slashing of the tax-free dividend allowance (£2000 down to £1000), the IR35 rules are still considered by contractors as the biggest threat to their business.
More than one in three of more than 700 contractors surveyed by Qdos view IR35 as the issue which has the most potential to impact their business negatively. This is ahead of concerns over the cost of living and the raft of tax increases introduced for the 2023/24 tax year (25%).
Reform to the IR35 rules were introduced in the public sector in 2017 and in the private sector in 2021. The changes saw freelancers’ clients become responsible for determining these workers’ tax status, unless the freelancer is engaged by a small company.
In last year’s Mini-Budget, it was announced that the off-payroll working rules would be repealed effective from 2023/24 tax year, before the newly appointed Chancellor, Jeremy Hunt reversed this decision. Just 7% of contractors surveyed by Qdos are ‘confident’ that the reform will be repealed in future. 43% are ‘not at all’ confident and 39% are ‘not very confident’.
On the two-year anniversary of the roll out of reform in the private sector – and six years since the changes were enforced in the public sector – Qdos CEO, Seb Maley said: “The tax burden on the UK’s smallest businesses is spiralling yet it is IR35 which worries freelancers and contractors most – this is saying something. The government’s heavy-handed way of tackling IR35 compliance has understandably put freelancers and their clients on edge.
“HMRC has a scattergun approach to IR35 compliance, pursuing cases for years only for it to be found that the freelancer has done nothing wrong. Take Gary Lineker, who HMRC wrongly believed owed £4.9m in tax. The same goes for Adrian Chiles, who had a £1.7m IR35 bill hanging over his head.
“With the off-payroll rules in force, HMRC is ramping up its compliance activity among businesses. And if the tax office’s policing of IR35 among freelancers and contractors is anything to go by, compliance must remain a priority for organisations engaging these flexible workers.”