When the government announced the mini-budget there were a few celebrations and several groups feeling like they could get no satisfaction like the Rolling Stones in the 1960’s. Anyone earning over £150K were delighted to get a 5% income tax deduction and IT contractors celebrated the news across Linked-In and Twitter that from April 2023 they could again work outside IR35 rules and reduce their taxes. Unfortunately for the high-income earners the celebration was short lived as the government due to lots of pressure had to u-turn the high-income tax cut and stay at 45%. As for the IT contractors they are still hopeful that April 2023 will see the government scrap recent 2017-2021 IR35 legislation.
Back in 2003 the labour government realised that billions of pounds could be collected from the hundreds of thousands of freelancers working in their own limited companies if they forced them to pay the same income taxes, and employers NI taxes as permanently employed folks. It was one thing coming up with new legislation almost 20 years ago but HMRC quickly realised it was costly to pursue small limited companies and the taxes they collected didn’t outweigh the cost of doing so. So the government came up with a new plan that put the responsibility on the end client (typically large companies). From 2017 all public sector organisations had to prove that contractors truly were outside IR35 and it became clear that after a few years that they owed HMRC £263 million in taxes. From April 2021 onwards all private sector midsize and large companies had to follow the same rules, in other words it pretty much wiped out a large % of the contracting market. Many associates of GOX decided to quit contracting and take on permanent jobs even though it meant 40-50% less take home pay they wanted the security during covid lock down.
Now with war in Europe, high inflation, a government that makes changes very rapidly we wouldn’t advice contractors to jump back to a job that used to be considered inside IR35 to now suddenly being outside IR35 as perhaps HMRC has technologies and tools that will flag this. However, if a contractor gets an opportunity to start a digital transformation with a new client and there are clear milestones and deliverables then I wouldn’t hesitate because paying less tax and the feeling of being independent far outweighs the risks especially if the government follows through with removing IR 35 legislation in April 0f 2023.
