[UK] End in sight for self-employed tax struggles

In positive news for both UK freelancers and the businesses that hire them, contentious IR35 rules - which forced contractors to pay more tax and created chaos for their clients - have been scrapped as part of the chancellor’s mini-budget, The Times reports.

The difference in tax between contracting through a company and being on a payroll can total £1,000 a year for someone earning £30,000, according to analysis by the accountancy firm Blick Rothenberg. For an individual earning £100,000 or more, the figure can reach tens of thousands of pounds.

There is no statutory definition of an employee in the UK. Workers, employers and HMRC rely on interpretations of case law going back decades, only adding to the confusion. Tax tribunals lodged by HMRC to determine what constitutes an employee have reportedly cost taxpayers huge sums. Some contractors have been chased for unpaid taxes going back years.

The most high-profile cases to hit headlines have featured television presenters. HMRC’s first victory came in 2017 when the Look North presenter Christa Ackroyd was left with a bill for £420,000 in tax and national insurance payments despite the fact that she “did nothing wrong, acted honestly” and was persuaded by the BBC to sign the contract in question, according to a judge. Ms Ackroyd lost an appeal in 2019.

Sky Sports presenter Alan Parry was ordered to pay £353,000. Adrian Chiles and Lorraine Kelly both won their tribunal cases after being presented with bills for £1.7 million and £1.2 million respectively. HMRC has raised an assessment for £4.9 million against Gary Lineker, who will contest the claim at a hearing that is yet to be scheduled.

For a contractor, there are ways to show that you run a business and are not a disguised employee. An employee will usually work for one employer so if your time is divided between clients it is harder for HMRC to claim that you are an employee of one of them.

Employers can stipulate where and how any work is to be carried out by an employee. A contractor should be able to show that this does not apply to them. You should also be able to demonstrate that you actively market your services, for example through adverts and business cards. Investing in your own software licences, training and professional memberships can also help, as can taking out business insurance.

The mini-budget change will not affect existing HMRC investigations. Contractors should reportedly keep current arrangements in place until April, then determine their employment status and work out how much they owe in tax.

In a statement HMRC said, “We have repealed the 2017 and 2021 reforms to off-payroll working rules, to simplify the tax system and reduce the administration burden on businesses which engage contractors, which in turn makes it easier for them to be more productive and grow.

“These changes will not affect settled or ongoing enquiries and litigation in relation to the off-payroll working rules.”

Source: The Times

(Quotes via original reporting)

In positive news for both UK freelancers and the businesses that hire them, contentious IR35 rules - which forced contractors to pay more tax and created chaos for their clients - have been scrapped as part of the chancellor’s mini-budget, The Times reports.

The difference in tax between contracting through a company and being on a payroll can total £1,000 a year for someone earning £30,000, according to analysis by the accountancy firm Blick Rothenberg. For an individual earning £100,000 or more, the figure can reach tens of thousands of pounds.

There is no statutory definition of an employee in the UK. Workers, employers and HMRC rely on interpretations of case law going back decades, only adding to the confusion. Tax tribunals lodged by HMRC to determine what constitutes an employee have reportedly cost taxpayers huge sums. Some contractors have been chased for unpaid taxes going back years.

The most high-profile cases to hit headlines have featured television presenters. HMRC’s first victory came in 2017 when the Look North presenter Christa Ackroyd was left with a bill for £420,000 in tax and national insurance payments despite the fact that she “did nothing wrong, acted honestly” and was persuaded by the BBC to sign the contract in question, according to a judge. Ms Ackroyd lost an appeal in 2019.

Sky Sports presenter Alan Parry was ordered to pay £353,000. Adrian Chiles and Lorraine Kelly both won their tribunal cases after being presented with bills for £1.7 million and £1.2 million respectively. HMRC has raised an assessment for £4.9 million against Gary Lineker, who will contest the claim at a hearing that is yet to be scheduled.

For a contractor, there are ways to show that you run a business and are not a disguised employee. An employee will usually work for one employer so if your time is divided between clients it is harder for HMRC to claim that you are an employee of one of them.

Employers can stipulate where and how any work is to be carried out by an employee. A contractor should be able to show that this does not apply to them. You should also be able to demonstrate that you actively market your services, for example through adverts and business cards. Investing in your own software licences, training and professional memberships can also help, as can taking out business insurance.

The mini-budget change will not affect existing HMRC investigations. Contractors should reportedly keep current arrangements in place until April, then determine their employment status and work out how much they owe in tax.

In a statement HMRC said, “We have repealed the 2017 and 2021 reforms to off-payroll working rules, to simplify the tax system and reduce the administration burden on businesses which engage contractors, which in turn makes it easier for them to be more productive and grow.

“These changes will not affect settled or ongoing enquiries and litigation in relation to the off-payroll working rules.”

Source: The Times

(Quotes via original reporting)