IR35 off payroll reform has been repealed
In news that will be welcomed by businesses and contractors alike, this morning’s mini-budget from Chancellor Kwasi Kwarteng included the news that the 2017 and 2021 IR35 reforms are to be repealed from 6th April 2023.
Earlier this month, Liz Truss promised in an interview that she would review IR35 legislation if she were to become Prime Minister. At the time, we at Kingsbridge were sceptical that this review would be anything more than lip service and we doubted it would materialise before the next general election. Which just goes to show that even the best of us must eat our words sometimes. Although in this case we’re more than happy to do so.
Those affected have been calling for drastic action on IR35 ever since the public sector reforms were introduced in 2017, with the clamour only getting louder with the launch of the private sector reforms last year. Rather than simplifying the system, the reforms only added complexity and unnecessary bureaucracy, holding businesses back and reducing opportunity for the self-employed. Truss and Kwarteng have delivered on those calls from businesses, contractors and industry experts such as Kingsbridge by skipping the review process entirely and repealing the reforms completely.
Kwarteng announced the U-turn in today’s mini-budget as part of the first steps to making the tax system less complex. 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 repeal mean for contractors and businesses?
When they come into effect next April, the repeals will mean that the responsibility of determining a contractor’s IR35 status will revert back to the contractor, as will the tax liability.
Ryan Dawson, IR35 Programme Manager at Kingsbridge, says, “This is a step forward for contractors and businesses who have called for this for so long.”
Paul Havenhand, CEO of Kingsbridge, elaborates, “This broadly unexpected U-turn on the 2017 and 2021 off payroll changes is a real boost to the UK’s contingent workforce. Contractors have had a tough few years with limited furlough support and restrictive blanket bans following Government changes to off payroll. These changes will inevitably result in an increase in contracting roles and give greater choice for the contractor community to operate under a business model which is right for them. More than ever, it is important that contractors assess their status and put the right protections in place for their business.”
After the repeal, businesses will no longer have to worry about IR35 status, they will simply be able to engage with contractors with confidence. This will bring about a huge shift in the market – both in the public and private sectors – and will see the end of blanket determinations, bans on engaging with contractors and other negatives that we have seen come into effect over the last few years. It will become 23.5% cheaper for businesses to engage with contractors, a huge saving that allows them access to a greater pool of talent.
Contractors will have responsibility for their own IR35 status and tax liability again, giving them more control over their income, as well as broadening the opportunities available to them. It will remove a lot of unnecessary stress and allow more contractors to continue being self-employed in the long-term. It may even give contractors who stopped being self-employed as a result of the reforms the confidence to return to contracting.
Of course, the current rules remain in place until 6th April 2023, so businesses and contractors shouldn’t go tearing up their Status Determination Statements just yet. Kwarteng’s promise to keep compliance under review means that HMRC will still be investigating any perceived non-compliance, so contractors should continue to protect themselves with appropriate contract terms, working practices and IR35 insurance. But today’s announcement is good news all round and we expect that contractors, businesses, and recruiters to be celebrating their lives being made distinctly easier.
We will have more detail and a full analysis on what has happened – and will happen – as more information is released by the government in the coming days and weeks.