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IR35 Rules - As Clear as Mud?

HMRC Head Office, Westminster

What are the Current IR35 Rules?

Since the IR35 rules were first introduced in 2000, they have been altered periodically by H.M. Government, and in particular, in 2017 and 2021. As far as anyone can see at the moment, those rules are not going to be reversed or changed although, confusingly, the Government announced in the latter part of 2022 that it would amend the rules in such a way as to reverse all changes that were made in 2017 and 2021. To make things more confusing, it subsequently backtracked completely on that proposal.

One can be forgiven for being baffled about what the current rules are and whether any further changes will or may be enacted in the foreseeable future, but we can confirm that, in short, the IR35 rules as amended in 2017 and 2021 have not been altered at all – the 2021 changes were introduced with effect from 6 April 2021 - and none of the 2017 or 2021 amendments are set to change.

Trying to Understand the IR35 Rule Changes

Media coverage over the past year or so about the IR35 rules has concentrated on comment about the effect of the changes to the rules rather than explaining the IR35 rules themselves and the IR35 regime as a whole. Little has been said about the considerable frustration suffered by freelance individuals and their business clients when trying to understand the rules and the various changes made to them. 

Those who are or might be affected by the changes, and those who are not affected by the changes, have experienced substantial difficulty in trying to get to grips with what the changes actually are, how they fit into the whole IR35 scheme, and how and when they need to take action to comply with the various IR35 requirements and constraints impacting on them.

Why is it So Difficult to Understand the Law?

If we take our focus off IR35 for the moment and instead consider the law and the legal system in general, businesses and other organisations have perfectly reasonable requirements when it comes to the introduction of new laws or changes to existing laws. They quite rightly expect legal developments to be accessible and as uncomplicated as is reasonably possible so that they might be better able to understand and implement them. They also expect to be allowed time to assimilate and adapt to legal changes that will affect them.

Absent fulfilment of those expectations, they might be confused by legal developments, they might be tripped up by unforeseen legal duties or liabilities, they might waste valuable management time in trying to understand and implement them, and they might also be put to a good deal of trouble or expense that should really be avoidable.

We live in an increasingly complex world, and that means that we inevitably have to live with an increasing volume of complex law and regulation. However, a legal system and legal developments can really only be regarded as truly just and fair if they meet a number of tests. Amongst these, firstly, the content and effect of the law in relation to organisations and individuals in itself needs to be fair; secondly, it needs to be as accessible and comprehensible to lay people as possible; and, thirdly, the process of introducing new laws or changing existing ones needs to be fair and reasonable. 

Are the IR35 Rules Clear Enough?

There has been a great deal of debate about the content, effect, and fairness of IR35 and changes to it. Leaving aside those issues, we ask the question could IR35 and the changes to it have been made more comprehensible and thereby transparent, and has the process of making and explaining those changes been fair and clear?

Freelance individuals, their business clients, and business people generally, quite rightly demand and need certainty as to what the law is at any particular time so that they know where they stand and can take action accordingly. (Lord Bingham, a senior Law Lord, wrote in 2010: “The law must be accessible and so far as possible intelligible, clear and predictable”.) Business people also need adequate advance notice of changes in the law for the same reason.

However, the changes to IR35 - in particular their structure and complexity pre-2017, and the way in which the 2017 and 2021 changes have been made and communicated - has made life difficult for freelancers, their business clients, and intermediary organisations working with them. The wording of the IR35 regulations and the changes made to them is somewhat opaque and complicated, resulting in a set of legal rules which are not at all user-friendly. The IR35 rules were created and successively amended in a way that produced a “kludge”, defined by the Oxford English Dictionary as “an ill-assorted collection of parts assembled to fulfil a particular purpose”.

One can also see similar problems in the conglomeration of immigration laws and state benefits laws.

Furthermore, contradictory announcements made in 2022 by H.M. Government about whether or not the 2021 IR35 rule changes would be scrapped have been very confusing.

The Rule of Law

We think that all this arguably means that H.M. Government has failed to ensure that there is certainty and fairness in the law and legislative processes in relation to IR35, the changes made to it, the clarity in its explanations of those changes, and its communications about its legislative intentions. This failure tends to detract from the principle of the Rule of Law, a fundamental principle historically espoused for centuries by the English Common Law.

IR35 Resources from Simply-Docs

You might find it useful to read the explanations and guidance notes about IR35 on our website together with our June 2021 blog about the changes made in 2021. All of that material remains up to date and does not need to be changed. It clarifies what the changes were, who they affect, and how they are affected. The wide range of materials on our website can help you with IR35 and self-employment issues, and we recommend that you read it in order to understand these topics better and to see which template documents might be useful to you. You can see all relevant up to date business information pages here and here, you can see our up to date guidance notes and template documents here and here, and you can find our June 2021 blog about the changes made in 2021 here.

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