Expect HMRC To Send More Tax Bills to Contractors
In the recent UK “mini budget”, the Chancellor announced that businesses and public authorities will no longer be responsible for determining the employment status of contractors.
This change in IR35 rules applies to people working in contract roles, and is the reversal of what was the biggest tax change to affect contractors in 30 years (effective from April 2021).
How Does This Affect Aussies and Kiwis Contracting in London?
While changes will be a relief for businesses and public authorities, that does not mean that the UK tax office (HMRC) will stop handing out tax bills for what it deems to be incorrect IR35 determinations.
• UK IR35 employment tax compliance changes to be repealed
• Off-payroll repealed – but IR35 still lives after April 2023
• Government repeals public and private sector IR35 reform from April 2023
For context, HMRC has been battling the use of limited companies by contractors for more than 20 years. During this period it has maintained that the use of limited companies by contractors is just a form of disguised employment for tax avoidance purposes.
So, don’t think for a minute that HMRC will stop sending out tax bills for what it deems to be incorrect IR35 determinations; there is nothing in the Chancellor’s announcement to suggest that HMRC has changed its view.
Furthermore, HMRC has handed out over £260 million in tax bills to other UK government authorities for incorrect IR35 determinations over the past couple of years.
A Word of Warning
From 6 April 2023, responsibility for IR35 determinations will rest squarely with the contractor.
Before rushing out to set up a limited company, contractors should bear in mind that the original IR35 legislation will remain in place after April 2023.
With the loss of a source of tax revenue, and without a change to HMRC position on the use of limited companies, expect HMRC to send more tax bills to contractors from April 2023.