Time is running out for freelancers and contractors to claim back potentially thousands of pounds in overpaid taxes under IR35 rules
The deadline for submitting an overpayment relief claim is April 5th, 2024. This applies to anyone who received an IR35 tax bill, even if it predates the 2019/20 tax year.
Why are they owed money?
HMRC often fails to account for income tax, corporation tax, and dividend tax already paid by freelancers and contractors when calculating IR35 liabilities. This can lead to double taxation.
How to claim your money back
Contractors who believe they’ve been overtaxed can submit an overpayment relief claim to HMRC. However, the claim must be made within four years of the tax year the bill was paid.
IR35: A Complex and Controversial Issue
IR35, introduced in 2000, targets situations where someone works like an employee but avoids employee taxes. Critics argue the rules are complex and can lead to unfair situations like double taxation.
Changes to IR35
In April 2021, responsibility for determining IR35 status shifted to medium and large-sized businesses engaging contractors. However, small businesses and contractors working before the reform are still liable.
Businesses Get Relief, Contractors Don’t
From April 6th, 2024, HMRC will no longer penalise businesses that have already paid tax for a contractor mistakenly classified as outside IR35. However, there’s no similar solution for contractors facing double taxation.
Call for Change
Industry experts are urging HMRC to extend the relief offered to businesses to contractors as well.
Taking Action
Freelancers and contractors are advised to check their eligibility for overpayment relief claims before the April 5th deadline. Recovering potentially thousands of pounds in overpaid taxes can be a significant financial boost, especially in the current economic climate.
Seb Maley, the CEO of contractor insurer Qdos said IR35 has been a “source of controversy” since its introduction in 2000, and this ‘double taxation’ of contractors is yet another flaw in the legislation’s design – albeit one that is widely overlooked.
The four-year time limit on claims adds insult to injury, too – limiting the opportunity of these individuals to reclaim overpaid taxes.
Businesses engaging contractors have also previously been overtaxed when settling IR35 liabilities. But HMRC has found a solution for that, effective 6th April this year. There’s no reason that this fix can’t be extended to contractors – something HMRC should be looking at urgently.
Until then, it’s essential that contractors are aware of the avenues open to them so that they can recover any overpaid taxes they are due. Given the economic climate, this should be a priority.
Seb Maley, CEO, Qdos
