IR35 reform will be repealed – here’s what contractors need to know
On a day that presented £45bn worth of tax cuts, the newly appointed Chancellor also revealed that The Government will repeal IR35 reform in the public and private sectors.
Kwasi Kwarteng – who had only been in the role of Chancellor for a fortnight before this eagerly anticipated fiscal event – announced the measure, much to the delight of the contracting sector.
Speaking on the issue of tax simplification, Kwarteng promised to “simplify the IR35 rules”, adding: “In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses. So as promised, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”
This article focuses on what this unexpected but widely welcomed development means for contractors.
Is IR35 being scrapped?
No. The IR35 legislation itself will remain in place.
Reform – which saw end clients in the public sector, along with medium and large businesses in the private sector tasked with assessing IR35 status – will be scrapped.
As a result, contractors will be responsible for determining their IR35 status again – as was the case before the rollout of IR35 reform in the public sector (2017) and the private sector (2021). The liability will also transfer back to the contractor.
It’s important to note that contractors engaged by small private sector companies, which were not impacted by reform, will continue to determine their IR35 status.
Why has the government decided to repeal IR35?
The previous government often spoke about the success of IR35 reform, claiming that it has improved levels of compliance.
However, as the Chancellor alluded to in his mini-Budget speech, the reform has resulted in “unnecessary complexity and cost for many businesses”.
This suggests that the newly formed government sees things differently.
When will it be repealed?
On 6th April 2023, which marks the start of the 2023/24 tax year.
What does it mean for contractors?
As mentioned above, contractors will become responsible for assessing their IR35 status – in other words, determining if the service they provide their client reflects self-employment (outside IR35) or is more akin to employment (inside IR35).
What does it mean for umbrella employees?
IR35 is only a consideration for individuals operating via personal services companies (PSCs), not those who work under a contract of employment, such as umbrella employees.
Because umbrella employees are employed by the umbrella company through which they work, IR35 has never applied to these individuals.
With this in mind, nothing directly changes for umbrella employees in light of the repeal.
How can I start preparing for the changes?
While end clients will remain in charge of IR35 until next April, that’s not to say contractors can’t ready themselves for the changes.
In advance of the introduction of the repeal, contractors are encouraged to:
- Look to ensure their IR35 compliance, which can be assessed via a professional IR35 contract review
- Consider protecting themselves with IR35 insurance, as HMRC will pursue contractors for non-compliance from the 6th April 2023.
The government will publish further information regarding the repeal next month – at which point, we will update this guidance to help you navigate these changes.
If you have any questions or would like to discuss your tax and accounting requirements with an expert, please request a callback, and a member of the team will be in touch.