IR35 Update



IR35 is a complex tax issue that’s been a hot topic this year, 18 years after it was introduced. We thought a quick IR35 update was in order to see what HMRC is up to!

What is IR35?

IR35 is tax legislation brought in by HMRC in 2000 to prevent companies from avoiding PAYE tax and National Insurance form employees by keeping them “hidden” and off the payroll. Instead, they would be paid as contractors, freelancers or sometimes as the sole employee of a “personal service company”.

The rules cover all contractors who do not meet HMRC’s definition of self-employment.

IR35 in 2018 Developments

In the autumn of 2017, the Chancellor of the Exchequer announced a number of changes to the IR35 legislation that will start to affect contractors in 2018. These include changes to public sector working but also the removal of the 5% tax free allowance from NI contributions for those contractors who came under IR35 rules.

IR35 has continued to be a hot topic this year for several reasons:

  • Recent high profile IR35 tribunal cases lost by HMRC
  • A consultation launched in May by HMRC on how to improve IR35 compliance

Ironically, attempts by HMRC to simplify and clarify the rules around IR35 seem to have made things worse and it will be interesting to see whether HMRC responds by changing course in the light of its recent set-backs.

What we were expecting to see this year was a clamp down by tax inspectors, but the cases going through the courts are muddying the waters. Until all test cases are resolved, it will be difficult to see a way forward, and things aren’t helped by the subjective way HMRC seems to interpret its own rules.

This is a complicated subject but what we do know is that the IR35 legislation itself, and the way it’s applied’ could be better.

If you aren’t sure if you come under IR35 legislation, you should check with the HMRC website or ask your accountant.

Need help with your tax questions?

To find out how we can help you ensure that you are tax compliant, while paying no more than you have to, contact Black and White Accounting today, or ring us today on 0800 140 4644.