During his delivery last week of the 2022 Mini Budget statement, Chancellor Kwasi Kwarteng announced that the UK government would scrap the 2017 and 2021 reforms to the IR35 off-payroll working rules.
“Reforms to off-payroll working have added unnecessary complexity and cost for many businesses,” said Kwarteng, addressing the House of Commons last Friday.
What is IR35?
IR35, or ‘off-payroll working rules’ were introduced by HMRC as a way of closing a loophole in the tax system, where contractors or freelancers could use the setup of a limited company structure in order to pay less tax.
Contractors and freelancers who were operating through a private company were able to pay themselves in a more tax-efficient way, where they generally pay lower income tax and don’t have to pay national insurance.
Originally, it was up to the individuals to determine whether they fell under IR35, but HMRC introduced reforms to the public sector in 2017 and the private sector in 2021 (for medium and large businesses), which made it the client’s responsibility to determine the contractor’s IR35 status.
However, these reforms proved to be difficult and controversial, making it more difficult and expensive for businesses to secure freelance work.
What changes were announced in the Mini Budget for IR35?
The Chancellor announced that from 6 April 2023, contractors and freelancers in both public and private sectors, providing their services through their own limited companies, would once again be responsible for determining their employment status, rather than businesses or public authorities.
What happens next?
Full details of the incoming repeal have not yet been published by HMRC, and we, of course, will keep you up to date with these changes, however, it is important to note that the changes to IR35 rules does NOT mean they have been scrapped altogether.
It is important for businesses to remember that it is just the reformed IR35 rules that are being repealed from 6 April, 2023.
IR35 rules will still exist – it’s just that contractors will once again be responsible for compliance and payment of tax. But businesses will still remain exposed to tax risks, for example – if they pay contractors off-payroll when they know the contractor should be taxed as an employee.
How can we help?
We will publish details of these changes in due course, but if you are unsure about how the IR35 reform reversal may affect you or your business, please get in touch with us today.