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.
| Old rule (2021 Independent Contractor Rule) | New Rule (Effective March 11, 2024) | |
|---|---|---|
| Basis of classification | Relied on a simpler, more straightforward approach that may not fully capture the complexity of modern work relationships. | Restores a multifactor "economic reality" test that considers a wider range of factors to determine employment status. |
| Legal consistency | Criticised for deviating from established legal precedent and potentially leading to more misclassifications. | Aims to align closely with longstanding legal precedent, offering more clarity and consistency in classification decisions. |
| Impact on workers | Concerns were raised that it might make it easier to classify workers as independent contractors, potentially denying them employment benefits. | Seeks to reduce the risk of misclassification, ensuring workers who should be classified as employees receive the benefits and protections that they're entitled to receive. |
| Guidance for employers | Provide a simpler framework for employers to classify workers, which could lead to broader interpretations and confusion. | Offers detailed guidance through the economic reality test, aiming to provide a clearer path for proper classification and reduce misclassifications. |
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.
Simplify IR35 compliance with YunoJuno
Need to streamline your business's IR35 compliance this year? YunoJuno offers leading IR35 coverage, providing assurance to your HR, Legal, Finance, and Tax departments.
Take charge of the entire compliance process with a transparent audit trail and comprehensive visibility into contracts, communication, and billing. YunoJuno can also help you to reduce the time it takes to process contractor compliance by over 50%.
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