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Government removal of IR35 rules are not straightforward

Employers and contractors should take care

The Government’s removal of the IR35 rules are not as simple or straightforward as they may seem and employers and freelance contractors should beware.

Whilst the Government recently announced the ‘removal’ of the IR35 rules, the changes are not as simple or straightforward as they appear

Whilst the changes are – in many respects – an improvement for contractors, as they may well be in a better position to fully and legitimately assess their deemed employment status these contractors need to accept that the change in policy creates additional risks for them.

HMRC continues to believe that Public Service Companies fail to correctly assess their deemed employment status in many cases with a resulting ‘tax loss’ to the Treasury.

As such, they will therefore realistically continue to actively pursue freelance contractors in this area over the coming years. It is vital therefore for contractors assessing whether they are deemed employees of the end client or not, keep clear records in this regard vis-à-vis each assessment which they make. It is essential that they continue to review the position throughout the life of each contractual relationship, as it is quite possible that their status as a deemed employee might change during the relationship with a client business.

The changes announced by the Government don’t actually come into effect until 6th April 2023 – until that date, the end clients of freelance contractors operating through a (PSC), will continue to be obliged to assess the ‘deemed employment’ status of any freelancers they are working with and to account for PAYE and NIC, where the individual is working as a ‘deemed employee’ in the client business.

In addition, from April 2023 onwards, contractors should realise that the IR35 rules are not rescinded per se – rather, from this date onwards, the original IR35 regulations from 2001 will come back fully into play. This means that from April 2023 onwards, the PSC / contractors rather than the end client businesses will be obliged again to review their deemed employment regarding each contract and to account for PAYE and NICs (employee and employer), where they are held to be a ‘deemed employee’ of the end client’s business.

Would you like to know more?

If you would like to discuss any of the above guidance or have other queries please contact your usual Blick Rothenberg contact or Robert Salter.

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