IR35 Off-Payroll reforms to be repealed from April 2023

Speaking to the House of Commons on Friday 23^rd September, Chancellor of the Exchequer Kwasi Kwarteng announced that the off-payroll reforms introduced in 2017 and 2021 will be repealed from April 2023.

The Growth Plan 2022

The Treasury’s Growth Plan, published shortly after the Chancellor delivered his mini-budget to the House of Commons, revealed the government’s plans to repeal IR35 reforms. The IR35 repeal is among the first steps the government plans to simplify the UK tax system. The Growth Plan states that the repeal will minimise the risk that genuinely self-employed workers are negatively impacted by off-payroll working rules. The repeals will also save time and money for businesses that engage contractors, which could be put towards other priorities.

What does the off-payroll repeal mean for contractors?

The off-payroll reforms rolled out into the public sector in 2017 and the private sector in 2021 will no longer apply from April 2023. Instead, the original rules will apply. The repeal means that contractors working via an intermediary such as a Personal Service Company (PSC) will again be responsible for determining their employment status. They will also be responsible for ensuring the correct amount of tax and National Insurance (NI) is paid for each assignment.

In parliament, to present his mini-budget, Kwasi Kwarteng spoke about the need to simplify the tax system before announcing that the government planned to extend that approach to the off-payroll working rules. 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.

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 repeal has been very welcome news for contractors, many of whom have been subject to risk-averse and, in the worst-case scenario, non-compliant IR35 determinations made by end hirers in the last few years.

What are the current off-payroll working rules?

IR35 was introduced in April 2000 to tackle the perceived problem of disguised employment. This is where organisations engage workers on a self-employed basis through an intermediary rather than on an employment contract. The off-payroll working rules were introduced into the public sector in 2017 and the private sector in 2021. The legislation ensured that workers providing their services to a client through an intermediary but would be classed as an employee if they were contracted directly, pay the same amount of Income Tax and NI as employees.

The off-payroll reforms also shifted the responsibility for determining a contractor’s IR35 status to the public sector or medium and large-sized private sector client engaging their services. The fee-payer is also responsible for accounting for and deducting the appropriate amount of tax and NI and paying it to HMRC on behalf of all contractors operating Inside IR35.