IR35 Changes since 2024: Simplifying Compliance, Reducing Risk
IR35 changes have had a significant impact on contracting practices within the UK. With the Off-Payroll rules being enforced by HMRC, in some cases very aggressively, contractors and businesses have had to be well-prepared to navigate the changes that have occurred since the rule changes came in.
The reform to end the “double taxation” issue under IR35 off‑payroll rules did come into effect on 6 April 2024.
So What Changed
The problem before April 2024: When HMRC found that a contractor had been incorrectly classified as “outside IR35,” the end client (employer) became liable for Income Tax and National Insurance contributions. However, there was no mechanism to offset the tax already paid by the contractor’s limited company (PSC). This led to double taxation — both the contractor and the client paying tax on the same income.
The reform (set‑off mechanism): From 6 April 2024, HMRC introduced a set‑off mechanism. This allows end clients to offset taxes already paid by the contractor’s PSC against their own liability when HMRC rules that the engagement should have been inside IR35.
Legal confirmation: The change was confirmed in last years Finance Act of 2024, which received Royal Assent on 22 February 2024 that same year. It officially ended the double taxation flaw in the off‑payroll working rules
Findings from a QDOS survey still highlight that a significant number of contractors support the complete removal of IR35.
It is essential for both contractors and businesses to stay informed about these and any upcoming changes, especially if the business model you are working with uses contractors on a casual or permanent basis and take proactive steps to adapt their contracting practices accordingly.
One crucial aspect of these changes is the use of the Check Employment Status for Tax (CEST) tool provided by HMRC. This tool is very useful as it helps to determine whether a contractor falls within the scope of IR35 or not, providing clarity on their tax status.
If you are a contractor or a end user business operating in this area it is essential that you make sure that you stay informed about the evolving landscape of IR35 regulations, to ensure compliance and mitigate any potential risks associated with non-compliance. By understanding and adapting to these contracting changes, stakeholders can proactively manage their engagements within the parameters set by HMRC.
In the run‑up to the Spring Budget of 2024, many contractors voiced strong calls for reform to the IR35 rules, with a significant number hoping the legislation would be scrapped altogether. Now that the Budget has been delivered, those expectations have now shifted into ongoing debate about how IR35 will continue to shape the contracting landscape and whether future reforms will finally address contractors’ concerns.
IR35 CONTRACTING
