A legislative fix to the off payroll working rules (IR35), could restore some much needed confidence in employers seeking the skills of freelance contractors. The merry-go-round of misinterpretation, fundamental errors and fear over the legislation since the roll-out in 2017 and 2021, made many employers take the risk adverse approach of imposing a blanket ban on all contractors, or only employing PAYE staff. Underpinning this approach, was the risk of ‘double taxation’.

The removal of the ‘double taxation’ issue, due to take effect from 06^th April 2024, will essentially reduce the tax risk for firms by 75% ensuring a fair sharing of the liability between employers and contractors, in the event of a mistake when assessing whether the off payroll working rules should apply or not. Since 2017, companies have faced having to pay four times the perceived loss of tax where they'd incorrectly assessed the IR35 status of a contractor, which had been viewed by many as a disproportionate and perhaps unnecessary risk.

Under the change, HMRC can offset any taxes already paid by an employer, if an error has been made when determining the employment status. This will address concerns in making overpayments to the government, with businesses avoiding the risk of ‘double taxation’, as well as offering much-needed predictability to the tax liabilities associated with these types of engagements. Furthermore, all parties can agree on a settlement figure with the automatic offset available, mitigating the need for expensive litigation.

The somewhat minor change to the legislation will go unnoticed by many. But for some, it should encourage them to revisit their policies on hiring limited company contractors, recognising that the reduced tax risk and increased clarity will remove a significant concern. The assurance that any mistakes in IR35 assessments will no longer result in disproportionate tax liabilities could restore some much needed confidence in the contracting market, giving organisations access to specialist skills at short notice and a more adaptable and dynamic workforce.

Kurt Rimell-Lejeune

Managing Partner

CY Executive Resourcing Ltd