The UK has recently seen a number of changes to tax and IR35 legislation that has affected the way contractors do business. The main change has been the introduction of the ‘off-payroll working rules’, or IR35, which is a set of rules designed to tackle tax avoidance by those working through intermediaries, such as a personal service company (PSC).
Under the new rules, companies engaging contractors are now required to assess their IR35 status and deduct the correct amount of tax and national insurance contributions (NICs) from contractors’ pay. If the contractor is classed as inside IR35, then the company will be responsible for deducting tax and NICs from the payments made to the contractor.
In addition to the new IR35 rules, the government has also recently introduced changes to the way contractors’ income is taxed. For example, the introduction of the ‘off-payroll working rules’ means that contractors are now liable to pay the same income tax rate as employees, rather than the lower rate they previously enjoyed. This change has been met with criticism from many contractors who feel that the new rules are unfairly penalising them.
The government has also recently increased the rate of national insurance contributions (NICs) for those working through a PSC. As of April 2021, contractors are now required to pay Class 1 NICs at a rate of 9% on their income, up from the previous rate of 2%. This has been a particularly controversial change, as contractors are now paying significantly higher NICs than employees, who pay a rate of only 12%.
In addition to the above changes, the government has also recently introduced a new tax relief called the ‘Super-deduction’. This is a tax relief that allows companies to reduce their corporation tax liability when they invest in new plant and machinery. This should be of particular interest to contractors, as it could result in more companies investing in new equipment and creating more work opportunities for them.
Overall, the recent changes to tax and IR35 legislation have had a significant effect on the way contractors do business in the UK. While the government has claimed that the changes are necessary to tackle tax avoidance, they have been met with criticism from many contractors who feel that they are being unfairly penalised. While the full implications of the changes are still to be seen, it is clear that the UK’s contractor market has been significantly affected.
