The IR35 reform will be repealed from April 6, 2023, according to this morning’s mini-Budget.
Speaking to the House of Commons today (September 23), Chancellor Kwasi Kwarteng said from April, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
Kwarteng also used today’s mini-Budget to scrap the additional rate of income tax and cut its basic rate to 19 per cent in a series of tax cuts which amount to £45bn.
The 2017 and 2021 reforms to the off payroll working rules – also known as IR35 – were a tax law that required the end client, and not the contractors they hire, to decide if the working relationship resembles a self-employed engagement or employment.
Under existing rules, the fee-paying party (either the end client or recruitment agency) shoulderd the liability.
The aim of the reform was to stop the promotion and misselling of disguised remuneration schemes, however the legislation has received criticism.
Kwarteng has repealed these reforms as part of the first steps in taking complexity out of the tax system.
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.
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“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.”
The changes will mean workers 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 which the chancellor said 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.
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In August, prime minister Liz Truss gave an interview where she indicated she would review the IR35 reforms.
The reforms were introduced in April 2021 to the private sector, and means that the responsibility for assessing whether a contractor is self-employed or employed is now with the end client, and not the contractor themselves.
The liability, and therefore financial risk, was also transferred to the fee-paying party.
The changes have been branded “a mess”, “unpopular” and “puzzling”.
The controversy surrounding the changes prompted the former chancellor, Sajid Javid, to pledge a review of IR35 as part of the Conservative party’s manifesto in the lead up to the general election.
By Sonia Rach
Source: FT Adviser