Will there be a U-turn on the IR35 repeal?
Today Prime Minister Liz Truss was forced to abandon yet another aspect of the mini-budget, just 21 days after it was announced. This was accompanied by the removal of Chancellor Kwasi Kwarteng from his position, as he takes the fall for the tidal wave of negative economic reaction that has overshadowed the last three weeks. Jeremy Hunt has been announced as his replacement.
It was corporation tax in the cross hairs this afternoon, as Truss reversed the decision to cancel the planned increase. This means that corporation tax will rise from 19% to 25%, a move worth £18 billion per year in taxes, according to Truss. This comes after she and Kwarteng had already been forced to abandon the scrapping of the 45p tax rate.
What this latest U-turn means for businesses in the contractor supply chain and, in particular, IR35 remains unclear since the issue was not mentioned specifically. For now, the repeal of the IR35 reforms is apparently safe, but that could change with the medium-term fiscal plan due on 31st October. This will now be delivered by Hunt.
One lesson we can take away from these turbulent times is that having a consistent, well thought out process and good governance when it comes to compliance is vital. It enables contractors, businesses and recruiters to adjust and react to whichever change of direction comes next.
Right now, our advice to our contractors and partners is to do the following:
1. Continue with IR35 status checks as normal
It’s important that you don’t change a thing when it comes to your current IR35 process (assuming you are already IR35 compliant, of course). It’s highly likely that there will be some toing and froing over the next few months.
IR35 is not a headline grabber with the masses. In fact, it’s considered rather niche which is why discussion of it was shut down on a recent episode of Question Time. For this reason, it’s fair to assume that it will be seldom mentioned other than in passing so we will need to wait for the draft of the Finance Bill to gain a clearer understanding of the government’s intentions.
Gaps in your due diligence could come back to bite further down the line, so assume nothing and keep your processes going.
2. Address compliance as a whole, not just IR35
IR35 should not be your only consideration when it comes to legislative compliance. It’s certainly been the thing at the top of most people’s agendas for the last couple of years, but it’s not the only thing that should be under consideration. Digital right to work, for example, snuck in under the radar last month, more or less unnoticed.
As a recruiter or end client, you should be ensuring that you have a robust and demonstrable compliance and onboarding process for workers, regardless of whether the engagement is permanent, a contract, or via an umbrella company. If you have this in place, in means that any upcoming changes can be slotted into place, rather than causing shock and upheaval for your business.
3. Ignore the hyperbole
There has been a lot in the news and on social media over the past few weeks with reference to the Criminal Finance Act and how existing Status Determination Statements provided by an end client might be considered by HMRC after April 2023. It’s all speculation at this point – nobody knows anything and the best thing to do right now is nothing.
Any changes won’t take place until next April at the earliest and, in light of today’s announcement, it could even be that they are put back to another future tax year. Rather than speculation on what may or may not happen, let’s use this time, as an industry, to come together and think of practical solutions to whatever we may face.
As always, Kingsbridge is here to help. Please do reach out to us if you have any questions. Our commitment to you is that we will help cut through all of the noise and offer practical advice to navigate these uncertain times.
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