To me – to you
Off payroll working reforms that came into effect in 2017 for the public sector and in 2021 for the private sector have all been undone. In case you've forgotten – the details are here – but that's academic as the baton has been passed back to the sub-contractor.
In a nutshell, the last legislation stated that the decision as to whether someone carrying work out for a company was a sub-contractor or an employee was the responsibility of the company employing their services. This applied to both independent contractors and limited companies that had been created to facilitate contracting.
The outcome was that companies erred on the side of caution and cut all their sub-contractors loose. The thought process was “We don't want to have to deal with HMRC investigations and so we just won't have sub-contractors.” Forcing most into employment either directly or via umbrella companies. This was short-term thinking and cost everyone money.
A lot of people who should not have been affected and were genuine temporary sub-contractors found themselves without work. Companies who no longer had temporary staff to fulfil seasonal, occasional or special project work had two choices – struggle with what they had or take on full-time staff. But you can't fire people when the work flow drops back to normal, so they had ongoing salaries to pay.
Most large organisations need occasional help and sometimes special projects can last years, rather than months, so the last 18 months have been difficult for some companies from an operations perspective. Not to mention all the sub-contractors who suddenly found themselves with no work and no income.
Finally, these new rules have been rescinded and we're back to the contractor being responsible for assessing whether or not they should apply IR35 or not.
This must come as a relief to the government advisors, who are mostly paid through limited companies.
IR35 has not gone away – the responsibility for decision making has just moved back to the sub-contractor side of the equation.
HMRC have admitted that the reforms forced larger companies to apply IR35 to sub-contractors who it shouldn't have. If you were one of those people – from April 2023 under new rules – it doesn't mean that you are automatically subject to IR35.
If you were a sub-contractor who shut down a limited company and claimed entrepreneurs relief then it's important to be careful about when you start a new company, if you decide to go down that route.
The employer has to terminate the employment of those who were converted to employees within two years of them starting as full-time staff if they want to avoid a number of employment law technicalities. However, if you start a new limited company within two years of closing down the previous one and propose carrying out the same kind of work, you may have to pay back the entrepreneurs relief AND pay income tax on it. So be careful with your timing.
Our best advice is to consult an accountant before making any important decisions about how you return to the world of sub-contracting.
Please note that this article was written prior to Liz Truss resigning as Prime Minister on 25th October 2022. The information presented here has now been changed. See 'As you were'