The Potential Impact of IR35 on UK Businesses

Alex Tarasenko
Alex Tarasenko

Have you heard about IR35 already? 

If you’re a business hiring workers through a contractor or an entrepreneur working on a self-employed model – read on. 

UK is introducing a major amendment to its IR35 set of corporate tax laws referred to as “Off-Payroll Reforms”. The so-called IR35 Intermediaries Legislation has been around for nearly 20 years. The law was originally developed to regulate the employer to employee relationships in the public business sector. However, considered unenforceable, it has begun to undergo changes since 2017 and is now receiving a major update.

The goal?

To combat a so-called “deemed employee” notion. 

The term refers to workers hired through third-party contractors on a self-employed basis. It is, apparently, considered a “disguised” workforce by the UK’s legislators. This is because the practice allows businesses to avoid a rather hefty employer’s NICs and Apprenticeship Levy taxes (over 14% income combined) on top of not needing to offer common employee benefits. Meanwhile, this means potentially higher pay for the workers – due to lower expenses on the side of the hiring party. 

The original law aimed at catching large tax-evading corporations and improving the employment conditions in the sector. However, its 2000 version has failed to achieve both, actually targeting small businesses due to a poor legislative form. So, the new off-payroll tax amendments have to fix exactly these issues. 

What will IR35 impact the industry players? 

If you’re a genuine individually-operating business (freelancers, individual entrepreneurs, contractors, etc.) there is nothing to worry about. So long as you’ve got a clear understanding of the reform and all the paperwork right – it won’t impact you. 

The companies hiring workforce through third-party require a little more caution when dealing with the contractors. Yet still, there’s nothing to worry about given that prompt and correct legal steps are taken when signing contracts. 

As for those potentially affected by the reform, here’s a tool to calculate the exact cost of the newly introduced taxation scheme.

All that said, the reform is still coming into effect and we’ll have to watch the situation unfold in order to see the full IR35 impact. So, stay tuned in to get all the major industry updates!

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