Huge Tax Changes for Self-Employed Following Publication of New Legislation

On 11 July 2019, the Government published draft legislation outlining the IR35 changes coming to the private sector, which are expected to affect 250,000 businesses.

The reform will impact users and suppliers of personal service company contractors in the private sector. Companies have only nine months to plan for the new off-payroll changes, as they will come into effect on 6 April 2020.

Daniel Fallows, Director of Gorilla Accounting, is concerned about the viability and effectiveness of the enhanced HMRC CEST tool and the government’s ability to implement and police the changes. He believes these changes aren’t as bad as anticipated for contractors and freelancers. However, HMRC’s deliverance of similar rules in the public sector have been poorly implemented and managed. 

He said: “We welcome the changes as they will stop those who currently abuse the rules from reducing their tax liability. There may be some medium and large companies who decide to reduce their exposure to the contingent labour force; however, when you read the detail of the statute, the effects on such companies are not quite as draconian as originally envisaged.”

The new changes will include the removal of the 5% admin tax allowance, except in cases where PSCs have the responsibility to administer IR35. The update also represents a shift in responsibility for establishing employment status.

The changes will apply to medium and large companies (as defined in the Companies Act 2006), which will be responsible for determining the IR35 status of contractors. Small organisations will be exempt.

According to Mr Fallows, those who operate compliantly outside of IR35 and have had this status professionally determined, have nothing to worry about.

Nevertheless, it can be difficult to make sense of this legislation, especially with proposed new changes and the fact that there are still a lot of questions unanswered. Mr Fallows believes that an accountant specialising in IR35 can help people to navigate the intricacies and complexities of this regulation and to gain a deeper understanding of whether the changes apply to them.

He said: “Although the changes are not as bad as everyone anticipated, anyone who is self-employed as a contractor, freelancer or locum should speak to a specialist advisor who can guide them through the process as soon as possible.”