IR35 – Repeal of reform means it’s status quo (for now)
28 Oct 2022
Hands up if you are confused.
One minute taxes are being cut, the next they are not.
One minute we’ve got an energy bills plan which lasts for two years, the next it’s gone.
And then there’s IR35.
Kwasi Kwarteng, in the brief period he was Chancellor, announced he was repealing changes to the IR35 scheme, meaning self-employed contractors or freelancers operating through their own companies would be responsible for their own tax status.
The move was one of the few areas of Mr Kwarteng’s doomed mini-budget which had won some plaudits.
Companies said it would free up their time to concentrate on running the business rather than complicated tax status paperwork and make it easier to hire contractors and freelancers.
Guess what?
New Chancellor Jeremy Hunt has scrapped Mr Kwarteng’s plan and repealed the repeal of the changes.
Mr Hunt, in his statement, said: “While we will continue with the abolition of the health and social care levy and stamp duty changes, we will no longer be proceeding with the cut to dividend tax rates, the reversal of off-payroll working reforms, introduced in 2017 and 2021, the new VAT free shopping scheme for non-UK visitors or the freeze on alcohol duty rates.”
So, let’s be clear about what this means today.
The onus for checking a contractor’s tax status now falls back to the hiring company – with the risk of possible fines if they get it wrong. The only time a contractor assesses their own IR35 status is when they are hired by a company which meets the government’s criteria for ‘small’.
The Treasury said this would “cut the cost of the Government’s growth plan by around £2bn a year”.
But the move has brought a fierce reaction from contractors and freelance groups.
Dave Chaplin, CEO of IR35 compliance firm IR35 Shield, said the repeal of reform “would have been a significant step forward for the UK’s army of self-employed people who are critical to the Governments’ pro-growth agenda. Instead, Off-payroll will continue to cause significant harm to the self-employed, major businesses, the government, and the economy.
“Whilst we agree that tax avoidance measures are sensible, the Off-payroll rules over-extended, causing genuinely self-employed contractors to lose their rights to be their own boss.
“The Conservatives U-turn on the repeal has thrown around half of the genuinely self-employed contractors under the bus and likely kissed goodbye to their success at the next General Election.”
We’ll await detailed guidance from HMRC about what maintaining the status quo means and let you know as soon as they issue any advice.
In the meantime, if you have any concerns or questions about any element of employment law in your business, hit the button for a free consultation.
