The end of IR35 double taxation: What it means for businesses and freelancers in 2024
In the latest Autumn Statement, Chancellor Jeremy Hunt confirmed the end of a controversial issue in the current IR35 rules commonly known as the “offset issue”. This change is intended to reduce the risk of companies that hire off-payroll workers from exposure to unexpected costs.
Here we explore whether or not this amendment could change the face of freelancer hiring in the UK in 2024 and beyond.
A reminder of the double taxation issue
Under the current IR35 rules, if a contractor’s Personal Services Company (PSC) has already paid tax prior to the point that they are deemed to be operating inside IR35, the company engaging the worker will still be liable to pay tax. Effectively, this would result in double taxation, with both the worker and the company both paying the bill in full.
The new rules, which come into force from 6 April 2024, state that the PSC’s existing contributions will be taken into account, meaning that ‘double-taxation’ won’t occur and HMRC will offset tax and NICs that have already been paid.
What do the new rules mean for businesses?
While IR35 rules overall are not changing and remain a complex area fraught with risk, the ability to claim offset will be welcome news to many businesses. Not only do the new rules come into force at the start of the new tax year, but they will also apply to arrears going back to April 2017. This means that if your business has been caught out by these rules in the past, you might be able to request a reduction in what was previously determined an underpayment in tax.
| Aspect | Employee | Independent Contractor |
|---|---|---|
| Control and supervision | Direct control over how, when, and where to work | Freedom to set their own schedules and methods |
| Payment | Regular wages; taxes withheld by employer | Paid per project; responsible for their own taxes |
| Benefits | Health insurance, retirment plans, paid leave | Must arrange their own benefits |
| Termination | Often requires notice and may include severance | Can usually be terminated at any time without benefits |
| Tools and equipment | Provided by the employer | Typically use their own tools |
Misclassification risks remain high
IR35 remains an incredibly important issue for businesses to get right, particularly for those hiring large numbers of off-payroll workers. If you’re planning on increasing your hiring of freelance and contract talent this year, it’s imperative that you make sure you have a robust and compliant solution in place to ensure you classify workers correctly and avoid compliance risks.
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