Empowering the Freelance Economy

Has HMRC conveniently “ignored” double taxation of IR35 for years?

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Just as hiring companies are becoming more flexible when it comes to hiring outside IR35 contractors, the government’s slow response to double taxation of IR35 could reverse that trend, experts tell The Freelance Informer

Terry Payne, Global MD of Aspire, tells The Freelance Informer the number one reason candidates do not want to take inside IR35 jobs is because when they work inside IR35 they’re “effectively taxed as employees but don’t receive employment rights in exchange.”

“As a result, some contractors prefer to raise their rates to compensate for working inside IR35 or look to work via umbrella companies,” says Payne.

The FI asks Payne whether hiring companies are becoming more flexible in hiring outside IR35 freelancers and contractors in 2023.

“Without a doubt,” he responds. “As time goes on, more businesses are open to engaging genuine contractors outside IR35. This can only be a good thing, both for the contractors themselves and the businesses wanting to utilise flexible skills.”

Double taxation of IR35 is hurting the freelancer economy

However, that trend could soon reverse, according to Seb Maley, CEO of IR35 compliance specialist and insurer Qdos, who is urging the government to move quickly to end the “fundamental flaw” of double taxation of IR35.

Maley explains that as it stands, “HMRC does not account for taxes already paid by a contractor when calculating the tax liability owed by a business in the event of non-compliance, under the off-payroll working rules.”

He continues, “This means businesses (which are liable for IR35-related taxes under the off-payroll working rules) are overtaxed, should HMRC find non-compliance.”

The longer IR35 is double taxed, the more risk-averse businesses are likely to be and the more damage done to the flexible workforce. It’s a relatively simple fix too. This is a fundamental flaw in this legislation – one that the government has been aware of for years and amazingly, has done nothing about.

Seb Maley, CEO of Qdos

Within this guidance, the government suggests that a legislative solution could be implemented from 6th April 2024, should the option to abolish double taxation be taken forward.

But Maley says “time is of the essence with this.”

The consultation is closed and the government must “move quickly” to end the double taxation of IR35, which “sees HMRC collect much more than it’s owed,” says Maley.

“We’ve seen it time and time again when the government consults on something only to ignore the issue for years,” says Maley. 

Maley continues, “The longer IR35 is double taxed, the more risk-averse businesses are likely to be and the more damage done to the flexible workforce. It’s a relatively simple fix too. This is a fundamental flaw in this legislation – one that the government has been aware of for years and amazingly, has done nothing about.” 

“At a time when businesses need flexible talent to navigate this difficult economic climate, the government should be doing everything in its power to help firms engage these workers. It’s in the best interests of businesses, contractors and the economy,” says Maley.

More information on the double taxation of IR35 can be found here.

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