Revised IR35 rules to be scrapped from April 2023

3 months ago by Oliver Atkinson

New Chancellor Kwasi Kwarteng’s mini budget announced the repeal of the IR35 rules for both the public and private sector. This announcement was met with far less controversy and was widely welcomed.

The off payroll working rules were introduced in 2017 for the public sector and 2020 for the private sector. This reduced the amount of people that could work on a contract basis and introduced a complex set of rules to identify whether an individual should be defined as self-employed or paid on a PAYE basis.

Under IR35, contractors working for a company often have the same taxes deducted from earnings as an employee, even if they do not always have the same employment rights, such as sick leave and holidays.

The rules have created a real headache for employers and emerging caselaw has made IR35 assessments complex. To demonstrate the confusion of the IR35 rule, HMRC have imposed tax bills for breaches to government departments such as the home office and the DWP, which has totalled £117.4 million.

From April 2023, workers providing their services via their personal service company will be free to determine their own tax status. For example, if they are an employee, they become responsible for paying their own tax as if they were an employee. Therefore, we go back to the same system in place prior to the rule changes which in the case of the private sector only came into force last year.

Individuals who may have been unfairly characterised as employees previously, will have the opportunity to take their own view of their status from April 2023 and possibly reduce their tax bills.

Overall, the measure will cost up to £1.1bn a year from 2023-24 tax year, rising to £2.6bn by 2026-27. However, the government’s aim is that this will free up resources for businesses that engage contractors, however, there is criticism due to the significant time and cost spent implementing the last reforms which created the burden in the first place. Cutting the red tape around off-payroll working is a huge move by the chancellor, which may be crucial in a tight labour market.

Contact our team here if you have any questions.