In brief: IR35 repealed, effective April 6, 2023. Tax rules had removed experienced IT contractors from the market, forced many into unregulated “umbrella” companies. Chancellor’s move in Growth Plan follows strident criticism including from Public Accounts Committee. “Reforms flawed from the start” say contractors.
The Chancellor is repealing IR35 — tax rules that hugely hit IT contractors — from April 6, 2023, The Treasury confirmed today as part of a sweeping package of tax cuts and reforms dubbed The Growth Plan 2022.
“The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023” The Treasury said in the Growth Plan 2022; a move that will be a considerable relief for thousands.
“From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions. This will free up time and money for businesses that engage contractors, that could be put towards other priorities. The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules.”
IR35 is an attempt to prevent artificial “off-payroll” working, where contractors use personal-service companies to handle income tax and national insurance, even while they are otherwise treated as normal employees.
With IR35 HMG made employers rather than employees responsible for determining the taxation status of contractors and freelancers working through their own companies,, starting with the public sector in 2017, and larger private sector employers in 2021. That move has forced thousands of experienced IT contractors as well as contractors in other sectors into early retirement — or controversial and poorly regulated “umbrella” companies.
IR35 repealed to delight of contractors
The decision to repeal IR35 comes just months after HMRC tried to brush off criticism of IR35 in a scathing Public Accounts Committee (PAC) report that had described the contractor tax reforms as “rushed” and having “structural problems”.
According to the PAC’s report, this enforcement was rushed, with just two months’ notice given to government departments, and an inadequate online tool provided for checking a worker’s status.
The report also suggested HMRC has no clear idea of the impact, true cost, or true benefit of enforcing IR35, and also has failed to provide a way for workers to challenge an incorrect assessment.
“Despite years of reforming the IR35 rules, there are still structural problems with how they work in practice.
“The IR35 rules do not work well with the realities of contracting, both in determining workers’ tax status and in resolving issues when mistakes have been made,” wrote the PAC in its report.
Commenting on the repeal or IR35, Dave Chaplin, CEO of IR35 Shield said: “Today, contractors and businesses will be celebrating as Liz Truss and her government have not only kept to their promise but gone further and repealed a legislation that has had a damaging effect on business and contractors’ livelihoods for the past five years.
“These onerous reforms were never going to work and were flawed from the start. The recent Court of Appeal Atholl House case further highlighted the structural deficiencies of the legislation. The new version of IR35 has simply served to pour glue on the economy and prevent growth. The Chancellor has done the right thing and removed an unnecessary burden for firms of trying to solve a complex riddle every time they hire a worker.”
Other tax reforms in the Chancellor’s announcement have been less well received.
Tax cuts and a colossal energy bailout have combined to help send the pound down even further. It is now down 23% against the US dollar in little over a year. Gilts spiked even as the pound plummeted. Deutsche Bank analysts said that “Investor confidence in the UK’s external sustainability is being eroded fast”. Restoration of the ability for IT contractors to use their own companies to operate may be scant relief in this climate.