Compliance & Tax

The end of IR35 double taxation: What it means for businesses and freelancers in 2024

The End of IR35 Double Taxation: What it Means for Businesses
Katey Gregory
Katey Gregory
January 25, 2024
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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.

AspectEmployeeIndependent Contractor
Control and supervisionDirect control over how, when, and where to workFreedom to set their own schedules and methods
PaymentRegular wages; taxes withheld by employerPaid per project; responsible for their own taxes
BenefitsHealth insurance, retirment plans, paid leaveMust arrange their own benefits
TerminationOften requires notice and may include severanceCan usually be terminated at any time without benefits
Tools and equipmentProvided by the employerTypically use their own tools
“The introduction of the ‘offset mechanism’ from April 6th 2024 means that businesses will not be overtaxed by HMRC in the event of non-compliance. This is without question a fair and reasonable solution to resolve an unfairness existing in the tax system. As a result, the perceived risk to engaging contractors will subsequently be reduced. However, this change is no silver bullet to the rules. It will only be utilised in the event of non-compliance and thus, ensuring a solid process is in place to manage IR35 status issues up front should remain a priority for businesses engaging with contractors who can operate within a fairer system.”
Ryan Dawson, IR35 Project Manager - Kingsbridge Contractor Insurance

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%.

“For many businesses, the ability to claim offset will be welcome news, however HMRC changes like this must push forward the agenda of ensuring the correct set up for the effective management of contractors and freelancers. Comprehending the risks associated with IR35 is one thing, but mitigating them with the correct legal compliance tools, processes and visibility, is ultimately what will safeguard the interests of both the contingent workforce and the organisation."
Chris Martin, YunoJuno VP of Sales

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