Has business reclassification put contractors back in charge of IR35?

If you’re a contractor, you need to be aware of changes to the off-payroll working rules (IR35) that were introduced in April. The good news is, experts are hailing the changes as positive for businesses and contractors alike.

Since 2021, medium and large businesses that engage a contractor have been responsible for determining IR35 status. It was only when working with small businesses (50 employees or fewer) that a contractor was responsible for determining their own status.

Although these rules aren’t changing, the level of turnover a company can generate before being considered ‘medium’ is rising from £10.2m to £15m. The balance sheet total a company can have before being considered medium is also rising from £5.1m to £7.5m.

This reclassification is expected to shift 14,000 British companies from the medium to the small threshold.

Experts hope this will reverse some of the chilling effect on the contractor market, with the confusion over who had responsibility for determining IR35 status putting some companies off engaging with contractors.

The change was welcomed by Seb Maley, CEO of IR35 specialists Qdos: “This redraws the boundaries of the off-payroll working rules and is ultimately a very welcome move – one that relieves thousands of businesses from the burden of IR35 and puts many more contractors back in charge of determining their IR35 status,” said Seb.

However, some have said the rule changes don’t go far enough.

“Let’s be clear: the number of contractors that this may benefit is minimal and the fundamental challenges with IR35 remain, continuing to impede the flexibility of Britain’s independent workforce,” said Dave Chaplin, CEO of IR35 Shield.

Although this news could benefit contractors long term, any changes to your tax obligations presents the opportunity for more uncertainty or mistakes—and that’s why working with specialist contractor accountants is so important.

Whether you’re brand new to freelancing or you’ve been doing it for years, our expert team has years of experience in making sure you’re on top of all your obligations and compliant with current legislation.

Unlike larger firms that offer a one-size-fits-all approach, we offer our contractor clients a custom-built package of services that meet your needs. To find out more about how we can help, book your free contractor accounting consultation now.