2024 Legislation to ‘Correct’ IR35 Related Double Taxation Anomaly for Engagers

Will this lead to fewer freelancer usage ‘bans’ by organisations afraid of the costs of an HMRC intervention and finding that their ‘outside IR35’ status determination is challenged and found to be ‘inside’?

The potential impact of the legislation change has been discussed in a recent article in the ‘Freelancer Informer’ and can be found here.

Angela Ferguson, Head of Employment Taxes at PSTAX commented on LI: “….There is currently no mechanism for an engager to benefit from the offset of tax that a worker has paid through their PSC, unlike the offset we have for sole traders, where workers are found to be inside of IR35 and the engager is facing a hefty backdated tax bill.”

The regulatory change is primarily focussed on sorting out the problem created by the legislation in 2017 which HMRC has been less than enthusiastic about correcting quickly although the issue was evident right from the beginning. Currently, HMRC does not account for tax already paid by a freelancer if the status changes and the whole new outstanding amount is payable by the ‘engager.

The Freelancer article makes the valid point:

“With less financial risk at play come April, we could see signs of blanket bans lifting, but contractors may still have to remain umbrella company workers until hiring companies get used to the idea. Hiring companies may also want to be off the hook for the risk of umbrella company tax avoidance, so could see the offset rules as a blessing if they can avoid using umbrella companies as payment intermediaries and create roles outside IR35.”

The IIM is aware that some of its members do work through umbrella companies, so with a bit of luck and a little patience, this change may prove beneficial in terms of simplifying at least one route to market.