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The off-payroll working rules or IR35 were first reviewed in 2019 and were due to be implemented last year but were postponed for 12 months due to the Covid-19 pandemic. 

Previously freelance workers who operated through their own personal service companies (PSC) determined their own employment and tax status but now responsibility for this decision has shifted to the company engaging their services instead. 

Genuine freelance workers could now face higher tax payments and companies could face bigger bills from having to employ more staff directly with the higher associated costs.

We’ve previously written that the aim of the IR35 rule changes are to ensure that workers who would normally be classed as direct employees of a company, essentially doing the same job or the equivalent of other employees pay the same income tax and NICs as their co-workers.

A contractor working under their own PSC then would usually be paying less than an employee directly hired by the business to do the same job. 

In a report to the House of Lords from the Economic Affairs Finance Bill sub-committee last year, they highlighted that some companies, especially in the oil sector, had imposed blanket status determinations on workers with some deciding not to use freelance contractors at all to ensure IR35 compliance.  

The report also surmised that some workers could find themselves with the worst of both worlds - they would have none of the rights of an employee and none of the tax benefits of being self employed. 

Andy Chamberlain, Director of Policy at IPSE, the Association of Independent Professionals and the self employed criticised the timing and the overall complexity of the changes.

He said: “The crucial problem with IR35 is still its complexity. In fact, it is so complex that HMRC have lost the majority of tribunals on its own legislation. 

“Now the changes to IR35 are shifting this complexity from contractors themselves onto their clients. The result is clear: chaos.

“Many clients are pushing all their contractors inside IR35 - against the rules of the legislation. Many more are only engaging contractors through umbrella companies, while others are scrapping their contractor workforces altogether - just when, as the economy opens up, they will need them most.”

IPSE research found that 50% of freelance workers were planning to stop contracting in the UK altogether unless they found contracts unaffected by IR35. 

Of these - 24% planned to seek contract work abroad, 12% said they would stop work altogether, 11% said they would bring forward plans to retire while 17% would seek a full time employed role instead. 

The implementation of IR35 comes at a particularly difficult time for the freelance and self employed sector. According to the latest ONS employment figures, one in eight freelance workers - 660,000 - had left the sector in the last year. 

These latest changes could see what is already a torrent turn into a flood. 

Depending on their individual circumstances, contractors will have different options to choose from when it comes to tidying up their affairs. 

A freelancer who’s personal service company has made a profit and can repay their debts within a 12-month period would be eligible to close their PSC through a Members Voluntary Liquidation (MVL). 

An MVL offers several advantages than other methods to effectively close down your company. 

It’s generally quicker, more straightforward, can be beneficial for certain taxes and generally less expensive than other methods. 

Any business that would be unable to pay off debts within a year or has no clear path to repayment should consider a Creditors Voluntary Liquidation (CVL) instead.

This is a formal process overseen by a licensed insolvency practitioner who would take over negotiations with creditors and look to settle all outstanding loans and debts including Bounce Back Loans along with any HMRC debt.

Being self employed or freelance is a balancing act at the best of times. 

In exchange for the flexibility and tax advantages, you forego the certainty of a regular wage and the rights and security of being an employee. 

Most of the time the scales will tip in your favour but the IR35 changes compound an already complicated and changing environment.

You might be forgiven for thinking that now you’re being asked to incorporate a juggling routine into your balancing act! 

If you’re a contractor with a personal services company or are generally concerned about what the changes could mean for your career and future livelihood then you should get in touch with us today. 

We offer a free initial consultation with an expert advisor who can clarify any concerns about your status and will be able to advise you on any outstanding HMRC issues you or your company has.

Sajid Javid
So it comes as no surprise to industry watchers and industry watcher watchers like ourselves that the government has announced, as promised before the general election, a review into IR35 before it comes into effect on 6 April. 
Last year Chancellor Sajid Javid said: “I want to make sure that the proposed changes are right to take forward. We’ve already said that we’re on the side of self-employed people. We will be having a review and I think it makes sense to include IR35 in that review.”
So far, so consulty. After all, 30,000 signed a petition to repeal the rules in November and it’s good to know you’re being listened to even if the ultimate decision goes against you, right?
Not so fast there. Jesse Norman MP, Financial Secretary to the Treasury, said: “We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules. 
“The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible”. 
Stressing that it’s about making the implementation as smooth as possible kind of sounds like the decision has already been made, no?
Julia Kermode, Chief Executive of The Freelancer & Contractor Services Association (FCSA) agrees - and then some. 
“This seems to be another meaningless review from a government who seems intent on bulldozing ahead with its plans anyway.
“They are expecting the review to be completed by mid-February which is simply not long enough to consider the deeply complex range of issues that the off-payroll legislation is throwing up. 
“HMRC has stated that it will be continuing its preparations to roll out the reforms in April come what may. We have learned that the review will focus on implementation of the reforms rather than the reforms themselves which is not what was suggested and is not what is needed.
“I fear that today’s pledge is simply the government paying lip-service to empty election promises and nothing short of an insult.”
There are also unintended consequences that could play out if the implementation goes ahead as scheduled. 
Research has found that 41% of businesses would consider stopping working with contractors due to the requirements of the legislation. 
There’s reports that some companies have initiated a blanket ban on the hiring of contractors anticipating that the new rules will make hiring them too costly and time consuming. 
GlaxoSmithKline has reportedly ordered 1,500 contractors working for it to sign on to PAYE or be cut, with some banks including Barclays and RBS also implementing this approach. 
Many accountants are also alarmed at the prospect as they could see a loss of their freelance client base if they switch to PAYE.
A more sober response comes from the Association of Taxation Technicians (ATT) who are calling for the IR35 implementation to be delayed for at least a year. 
Jon Stride, co-chair of their technical steering group said: “As the Budget will not take place until 11 March 2020, the subsequent Finance Bill containing the legislation for these rules will only be published a little over three weeks before they are due to take effect.”
If you’re an accountant who’s worried that their carefully cultivated and cared for contractor customer base is about to evaporate overnight, or a freelance contractor who’s wondering what’s going to happen after 6 April then get in touch with us today
After a free initial consultation with an experienced expert advisor we can help plan out a strategy for you and your business no matter what the future might have in store. 
Our expertise in Creditors or Members Voluntary Liquidations (CVL/MVL), administrations and liquidations means that we have dealt with your situation before and can help you decide what you want to do next.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association


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