Kwasi Kwarteng recently announced plans to repeal the controversial reforms to off-payroll rules — known as IR35 . It's important to remember that the IR35 rules are not disappearing entirely, they're just being tweaked so Kwarteng's recent announcement means there will be some changes to how the rules currently operate. The changes to the IR35 rules are one of a number of upcoming measures from the government to simplify the tax system.
What is IR35 meant to do?
IR35 was originally introduced to crack down on companies and individuals avoiding tax by individuals trading as contractors when actually in reality they were working as employees. The IR35 rules are statutory rules contained in the UK’s Income Tax (Earnings and Pensions) Act 2003. However well-intentioned, IR35 has placed considerable administrative burdens on businesses with some simply opting for blanket bans on having contractors in the first place so they don't fall foul of the rules.
From 6th April 2023, whilst IR35 will continue to exist, the changes to the IR35 rules mean that the responsibility for determining a worker’s IR35 tax status will shift back to individuals rather than the businesses benefiting from their services. This reverses the changes that were originally introduced in 2017 for the public sector and in 2021 for those of us in the private sector.
Why make changes?
Kwarteng hopes that returning back to the previous system will minimise the risk that genuinely self-employed workers will be impacted by the off-payroll rules.
What do businesses need to do?
As it stands the changes won't come into force until 6th April 2023, so at present, there isn't really anything for businesses to do other than carrying on as normal. The changes mean that individuals, and not companies, will be responsible for determining their own employment status for tax purposes so previously where companies would be responsible for using the governments online employment status for tax tool (CEST), you can see the tool here; https://www.gov.uk/guidance/check-employment-status-for-tax, from April 2023 businesses themselves will no longer be required to make this check. As above, however, the changes won't be made until next year, so businesses should continue to use the CEST tool until that point.
Obviously, businesses need to ensure they are not engaging in practices that mean they are employing contractors who really should be classed as employees. Businesses will still be at risk of other tax rules and corporate criminal tax offences if they pay contractors off-payroll when they know that the contractors should be taxed as employees.
Where can I find more details?
If tax floats your boat, you can read the full Growth Plan Document from the HM Treasury here https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1105989/CCS207_CCS0822746402-001_SECURE_HMT_Autumn_Statement_2022_BOOK_Web_Accessible.pdf
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All information within this post is provided for guidance only, always seek your own legal advice
The information with this post was correct at the time of publishing, October 2022 but may be subject to change