Mini-Budget: IR35 will be repealed from April 2023

In a surprising yet welcomed announcement, Chancellor Kwasi Kwarteng has pledged to simplify IR35 rules for contractors in the UK. From April 2023, off-payroll working rules introduced in 2017 and 2021 will be scrapped, and workers will again be responsible for deciding their employment status.

IR35 reform will be repealed to pre-2017 rules from 6^th April 2023

Section 3.44 of The Growth Plan sets out the government’s first steps in taking the complexity out of the tax system. The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed on 6^th April 2023. From this date, workers providing their services via an intermediary will again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance. The Growth Plan states that this will save money and time for businesses that engage contractors. It also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll working rules.

In his mini-budget, the Chancellor said that workers, rather than public and private sector end clients, would once again be responsible for determining their employment status. He said:

“To achieve a simpler system, I will start by removing unnecessary costs for business. We can also simplify the IR35 rules and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.

So, as promised by the Prime Minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”

What does the IR35 reform repeal mean for contractors?

The repeal of the IR35 rules from 6^th April 2023 means that contractors working through a Personal Service Company (PSC) are once again responsible for determining their IR35 status and ensuring they pay the correct amount of tax and National Insurance for the services they provide.

Contractors, freelancers and businesses that engage with temporary workers have welcomed the Chancellor’s announcement that the government will repeal the IR35 rules that have created significant financial, compliance and tax burdens for businesses. The Chancellors announcement could see a rise in the number of individuals returning to contract work from April 2023, particularly those operating through limited companies.

Dave Chaplin, CEO of IR35 Shield and Contractor Calculator, said:

“Today, contractors and businesses will be celebrating as Liz Truss and her government have not only kept their promise, but gone further and repealed legislation that had a damaging effect on business’ and contractors’ livelihoods for the past five years.”

Background to IR35 and the current off-payroll working rules

IR35 came into effect in April 2000 as a way for HMRC to collect taxes and National Insurance Contributions (NICs) from disguised employees. A disguised employee is a worker who supplies their services to a client via an intermediary – such as a limited company. The worker would otherwise be an employee if the intermediary were not used. Before 2017, all contractors working via an intermediary were responsible for determining their IR35 status.

HMRC reformed the off-payroll working rules for the public sector in April 2017. The introduction of off-payroll in the public sector meant the responsibility for determining the employment status of the contractor working through the intermediary now shifted to the public sector client engaging them. The reforms also made the fee-payer responsible for deducting and paying NICs and income tax to HMRC on all wages paid to the worker.

In April 2021, the off-payroll working rules came into effect for the private sector. From this point, all public sector end clients and medium and large-sized private sector end clients engaging temporary workers were responsible for determining the worker’s employment status. Similarly to the public sector, the fee-payer also adopted responsibility for accounting for and paying NICs and income tax to HMRC.

Contact us today to discuss your payroll and accountancy options

Whether you are working on contracts deemed inside or outside IR35, we have a range of PAYE umbrella and accountancy services to support you throughout your career. To discuss your payroll and accountancy options, please give our friendly Consultants a call on 01707 871622 or complete the short form on our website so request a callback.