Top 3 struggles with the IR35

In the United Kingdom, the implementation of IR35 has caused a significant stir among contractors and companies alike. IR35, or the "off-payroll working rules," is a tax law that aims to tackle tax avoidance by contractors who work through their own limited companies. It is a complex piece of legislation that has caused confusion and uncertainty among those impacted by it.  

Here are the top three struggles contractors are facing right now with IR35: 

1. Determining Employment Status 

One of the main issues with IR35 is determining whether an individual is an employee or a contractor. The employment status determines whether IR35 applies or not. If an individual is deemed to be an employee, they will be subject to income tax and National Insurance contributions. On the other hand, if they are deemed to be a contractor, they will be able to operate through their own limited company and pay themselves a combination of salary and dividends. 

The problem is that the criteria for determining employment status are not always clear-cut. HM Revenue and Customs (HMRC) uses a set of tests known as the "employment status indicator" to help determine whether an individual is employed or self-employed. However, these tests are not fool proof, and there is no definitive answer to whether an individual is employed or self-employed. 

1. Responsibility for Determining Employment Status 

Another struggle with IR35 is the responsibility for determining employment status. Previously, it was up to the contractor to determine their employment status and whether IR35 applied. However, under the new rules, the responsibility has shifted to the end client. The end client must determine the employment status of the contractor and communicate this decision to the contractor and any agency involved in the engagement. 

This shift in responsibility has caused confusion and frustration among end clients who may not have the expertise or resources to make an accurate determination. Additionally, there is concern that some end clients may make blanket determinations, which could lead to legitimate contractors being unfairly caught by IR35. 

1. Impact on the Contractor Market 

Finally, the implementation of IR35 has had a significant impact on the contractor market. Many contractors have seen their income reduced as a result of the new rules. Some have been forced to operate through umbrella companies, which can be costly and result in a significant reduction in take-home pay. Others have decided to seek employment, which has led to a shortage of skilled contractors in some industries. 

There is also concern that the implementation of IR35 could lead to a rise in non-compliant behaviour, such as companies operating outside the rules to avoid paying taxes. This could have serious consequences for the UK economy. 

In conclusion, IR35 has caused significant struggles for contractors, end clients, and agencies alike. Determining employment status, the responsibility for determining it, and the impact on the contractor market are just a few of the challenges that have arisen because of the new rules. While the aim of IR35 is to tackle tax avoidance, it remains to be seen whether it will achieve its intended goal while avoiding negative consequences for the UK economy. 

Tools that can help 

The SPG IR35 tool offers a comprehensive solution to the complex issue of IR35 compliance. With our platform, users gain FREE access to fast, efficient, and accurate job role assessments. We pride ourselves on delivering timely and accurate results so that our users can make informed decisions with confidence. Our tool also provides access to a confidential client real-time reporting area, where users can monitor and manage the status of their assessments.  

In cases where the result produced by the tool is indeterminate, our IR35 specialists are on-hand to provide additional support and guidance. Additionally, we recognize that each supply chain has its unique circumstances, and our tool facilitates interaction with the entire supply chain.  

We also offer the ability to request a free manual review of the assessment, regardless of the result produced by the tool. With our comprehensive suite of features, we believe our tool is the perfect choice for businesses looking to navigate the complex world of IR35 compliance. 

You can find our more information on our IR35 Page.