Tucked away in the biggest 'mini-Budget' in history last week, was an important announcement from the new Chancellor. The largely unpopular changes to the 'off-payroll worker' rules (commonly referred to as IR35 reforms) are going to be reversed from 6 April 2023. The IR35 regime will remain but the reforms that have caused many organisations hours of strife will fall away. 

Recap
IR35 was introduced to address the millions of pounds HRMC were losing as companies avoided paying PAYE and national insurance for 'deemed employees'. These 'deemed employees' were contractors (in name only) who were employed through an intermediary, usually a Personal Services Company (PSC). In reality, they were treated and behaved like employees and would have been considered as such but for the PSC/intermediary. By placing this intermediary in the middle of the relationship, the company avoided PAYE and NI and the contractor drew down dividends from their PCP. The only loser was HMRC it would appear! It was the contractor/intermediary who was responsible for assessing the tax liability in these cases. 

To assist the implementation of IR35, reforms were introduced into the public sector in 2017 and then the private sector in 2021 (delayed 12 months by Covid-19). These reforms shifted this tax assessment responsibility and so shifted the risk. In 2017 in the public sector the responsibility for assessing the tax treatment of the contractor moved to the organisation (the client) and the same thing happened in the private sector in 2021 (small private sector organisations were exempt). For a more detailed recap, please do read our blog on the changes to the off-payroll working rules. 

What’s changed?
The Chancellor in his speech said IR35 reform had imposed 'unnecessary cost and complexity' for 'many businesses' and confirmed they would be repealed from 6 April 2023 in both the private and public sectors. There might not be much that many organisations will cheer for in this mini-budget, but that statement will probably get a small one! The reforms did eat up a lot of time and resources in compliance measures. 

So, from this date, IR35 in its pre-reformed state will apply. The risk and responsibility for tax will fall back on the contractor / PSC intermediary. The Chancellor said: “This will free up time and money for businesses that engage contractors, that could be put towards other priorities”.

Further details are to be expected. For the short term, we know that nothing is to change until 6 April 2023. In the meantime, we advise our clients caught by these rules to carry on auditing all contractors engaged through intermediaries; issuing Status Determination Statements and making the appropriate payroll changes as required. If you require specific IR35 advice and/or are unsure whether the rules apply to you currently, please do get in touch.

As and when further detail is released, we will provide an update. We invite those interested in finding out more about IR35 and other employment law changes to attend our virtual Employment law update event on Tuesday 18 October 2022.