Latest IR35 Update: What It Means for Contractors and the Financial Contracting Market

IR35 has long posed challenges for both contractors and employers. Since its introduction to the private sector in 2017, it has complicated the classification of roles as inside or outside IR35, added administrative responsibilities, and introduced the issue of "double taxation."

Last year, HMRC announced plans to reform the legislation in April 2024, which will modify the functioning of IR35, particularly for roles classified as outside its scope. These changes are expected to be welcomed by contractors and businesses alike, with some experts anticipating that roles outside of IR35 will become predominant by the end of 2024.

IR35 is a topic that has divided opinions and understanding. Further changes can potentially add to the confusion, so it is important to attempt to simplify things for our network.

Our Opinion

Over the last 18 months, I have seen more roles advertised as inside IR35 even when they appear to be clear candidates for outside. This usually stems from a risk-averse position by the company without actual assessment, potentially losing out on suitable contractors and often paying more through pension/NI contributions as well as inflated salaries to compensate for the extra taxation.

Starting on April 6th, 2024, HMRC implemented new changes using "assumption and best judgment" to estimate the taxes already paid by contractors for roles outside of IR35. This approach aims to prevent double taxation by allowing some tax deductions when a role shifts from being classified outside to inside IR35.

Although this update is relatively small, it has the potential to greatly increase the number of roles classified outside of IR35, thereby significantly lowering the risk for businesses. This could come as welcome news for contractors and businesses alike, providing comfort to those who have deemed roles inside purely due to associated double taxation risks. The full impact of this change remains uncertain, but it is important for businesses to take note, as it could greatly reduce the administrative burden on their contract teams.

Staying informed and seeking professional advice will be key to successfully navigating the new IR35 landscape.

Need for Professional Advice

Given the complexity of the updated IR35 rules, contractors are increasingly likely to seek professional advice to navigate the changes. Accountants and legal advisors specialising in IR35 can provide crucial guidance on contract reviews, status assessments, and compliance strategies to help contractors minimize their tax liabilities and avoid penalties.

Our Last Word

The latest IR35 reforms in April 2024 present an opportunity for both contractors and businesses to benefit from clearer classification and reduced administrative burdens. Staying informed and consulting with experts will be essential in adapting to these changes and optimising their advantages. We continue to insure all of our interim consultants to ensure that the highest standards of compliance are covered and our clients have peace of mind.

If you have any questions regarding IR35, Dale Spink is happy to discuss