IR35 Off-Payroll Working Rules that took effect in April 2021 will remain in place following an Oct. 17 announcement by newly appointed Chancellor Jeremy Hunt that he would scrap a planned repeal. The news comes less than a month after an announcement in the Mini Budget 2022 by then-Chancellor Kwasi Kwarteng that the reforms would be repealed.

This week’s announcement stated that the government will no longer move forward with a plan to repeal the 2017 and 2021 reforms to IR35; the repeal would have taken effect in April 2023.

The reforms were initially implemented to address widespread non-compliance with the original rules.

“The reforms will now remain in place,” the government stated. “This will cut the cost of the government’s Growth Plan by around £2 billion a year.”

The IR35 reforms play an important role in ensuring that independent contractors are correctly identified and taxed appropriately, notes John Nurthen, executive director, global research, at SIA. “It places an obligation and risk on the end-user — HR or procurement — which, no doubt, they would prefer not to have, but at the end of the day, it’s not unreasonable for governments to want to ensure workers are taxed appropriately,” Nurthen says. “IR35 is not perfect by any means, but it’s better than nothing.”

Effect on Contingent Workforce Managers

However, critics of the regime argue that the current IR35 rules are unnecessarily complicated and time-consuming to apply, with widespread criticism of the government’s Check Employment Status for Tax tool.

The current responsibility on end clients to determine whether IR35 applies puts an administrative burden on businesses to review and monitor all contractor relationships and to make a determination as to whether or not each falls within the scope of IR35, according to Sinead Kelly, an associate at London-based law firm Collyer Bristow LLP.

“As it stands, it remains the responsibility of end clients to determine whether or not IR35 applies to each contractor relationship,” Kelly wrote in a blog post. “In the private sector, this has been the case for medium and large businesses since last April and businesses who regularly use the services of contractors should have implemented processes and carried out training for relevant staff members to ensure compliance.”

Concerns Remain

Several entities criticized the about-face on the planned repeals.

“The government’s initial commitment to repealing the Off-Payroll rules was a sensible initiative and would have been a significant step forward for the UK’s army of self-employed people who are critical to the government’s pro-growth agenda,” said Dave Chaplin, CEO of tax compliance firm IR35 Shield. “Repealing Off-Payroll would have returned an essential level of certainty to contract transactions in the market economy, leading to economic growth. Instead, Off-Payroll will continue to cause significant harm to the self-employed, major businesses, the government, and the economy.”

Professional Passport CEO Crawford Temple called the Off-Payroll rules that were rolled out to the public and private sectors in 2017 and 2021 “ill-thought-through and damaging for the UK economy.”

“The OPW (Off-Payroll Working) rules were built on already fundamentally flawed IR35 legislation and so we now call for a considered approach and a proper review that Liz Truss promised as part of her ministerial campaign,” Temple said.

The Freelancer and Contractor Services Association (FCSA) also stated that it was disappointed that the rollback of the reforms will not proceed.

“This will add to the confusion in the contractor marketplace and will also do nothing to improve the agility and flexibility contractors offer UK plc,” said Chris Bryce, FCSA’s Chief Executive. “However, the chancellor also recognized that re-introducing the 10% rise in National Insurance Contributions dropped by his predecessor would have been a step too far, and since that tax would have disproportionately affected those working via umbrella companies, I’m pleased that it currently remains off Jeremy Hunt’s agenda.”

SIA’s FAQ on IR35 Off-Payroll Working Rules are available to CWS Council members online.