As of April 2023, IR35 reforms will be no more; contractors will be responsible for assessing their own taxes.
UK Chancellor Kwasi Kwarteng in delivering the 2022 mini-budget pledged to repeal the 2017 and 2021 IR35 Off-Payroll reforms.
In a speech, Kwarteng addressed how the UK can simplify the IR35 rules. “In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses,” Kwarteng said. “So, as promised by … Prime Minister [Liz Truss], we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”
The IR35 reforms, which were rolled into the public and private sectors in 2017 and 2021, respectively, will no longer apply from April 2023. Instead, the original rules will remain, and contractors will be responsible for assessing their own taxes.
The reforms had aimed to stop disguised remuneration schemes; however, the reforms have received criticism, and their repeal is welcome news.
Matt Fryer, head of legal services at Brookson Legal, a People2.0 company, says the government’s U-turn on IR35 would be welcome news to recruiters and their clients “as it removes a significant compliance risk from their business. … This should help to unlock the potential of flexible workforces at a time of increasing demand for highly skilled temporary workers, particularly in industries such as IT, engineering and energy.”
For contractors themselves, the move is a “huge victory,” said Seb Maley, CEO of IR35 expert Qdos. “The changes have created havoc for hundreds of thousands of independent workers along with the businesses that engage them. The fiscal changes announced today are likely to go down as some of the most pro-contracting in memory.”
Fryer noted that companies shouldn’t feel the work done to prepare for compliance was in vain, however.
“Agencies and their clients now have a greater visibility of their flexible supply chain to monitor both compliance and cost as well as a better understanding of how to support contractors to get their tax status right,” Fryer noted, adding that staffing agencies and end clients should continue to pay close attention to payroll compliance.
“When it comes talent attraction, agencies who manage contractor payments smoothly and support their candidates with tax status determinations for projects, in the same way they have been supporting their clients in recent years, are likely to be valued in this competitive job market.”
Clear guidance needed. Observers also are calling for the government to provide a clear roadmap for the reversal. “The last thing contractors and businesses impacted by IR35 need is uncertainty,” Maley said. “A clear and robust roadmap for reversing IR35 reform in both the public and private sectors is needed.”
Professional Passport CEO Crawford Temple concurred, adding “the government urgently needs to press HMRC to provide detailed guidance … relating to the application of the MSC (managed service company) Legislation.”
But the repeal is still months away, Fryer cautioned. “It is important to remember that the repeal does not happen until April 2023, so agencies must continue to ensure that their businesses and suppliers are compliant now, in line with the IR35 rules that are being enforced until then.”