Astonishing news for contractors, freelancers and organisations who engage with temporary workers – the government is going to repeal IR35 rules (off-payroll) from April 2023. This news has been extremely well-received by industry stakeholders, but what does it mean for the industry, and what did Kwasi Kwarteng say on the topic in the House of Commons? Please keep reading for more information.
What are the IR35 off-payroll working rules in the public and private sector?
IR35 is legislation designed to stop disguised employees from benefiting from tax breaks they shouldn’t have access to. Since it rolled out in 2000, it has undergone several tweaks, but the most notable were changes to off-payroll working rules in the public sector (2017) and private sector (2021).
Before off-payroll changes in the public and private sectors, limited company contractors were responsible for determining their IR35 status. This allowed businesses to hire contractors without having to worry about making individual assessments and the risks associated with getting these wrong. Unsurprisingly, demand for PSC workers fell because organisations struggled with the new responsibility. There were also plenty of reports of companies rolling out blanket “inside IR35” assessments – to cover themselves. This meant thousands of contractors suffered as a consequence.
What was announced in the mini-budget regarding IR35?
To many people’s surprise, it was announced in the mini-budget (Friday, 23rd September) that the off-payroll working rules implemented in the public and private sectors will be repealed in April 2023. Chancellor Kwasi Kwarteng 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.”
What does this mean for the UK’s temporary workforce?
We cannot say for certain how this will impact contractors, freelancers and UK-based businesses, but here are some possibilities:
- More organisations will seek limited company contractors to work on temporary assignments because they won’t have to worry about the consequences of making incorrect IR35 assessments. It’ll also reduce the business’s administrative burden. This will also allow contractors to fairly assess their IR35 status, making things fairer (as some organisations didn’t cope well with the assessments themselves).
- Demand for temporary workers could rise.
- Contractors who have previously switched from limited company contracting to being an umbrella employee are likely to want to switch back, and will seek appropriate roles.
- Temporary workers who deem themselves outside IR35 could see their take-home pay increase because they will be able to pay themselves with a combination of salary and dividend – compared to PAYE through an umbrella company. Obviously, this completely depends on the IR35 status of each worker.
- Umbrella companies will remain a valuable solution for workers who deem themselves inside IR35.
- There is likely to be a transitional period – as businesses and contractors familiarise themselves with the new IR35 circumstances. Once the sector has settled down, contractors will have more control over their future work.
Overall, the announcement is a positive one for contractors and freelancers and shows that the government is listening to those who have campaigned against off-payroll changes ever since they were rolled out in the public sector (and subsequently the private sector).
How have key figures responded to Friday’s mini-budget?
It’s always interesting to see how stakeholders have responded to an important government announcement. Below are some replies to the mini-budget that you may find interesting.
Rachel Reeves – Labour’s shadow chancellor
Labour’s shadow chancellor, Rachel Reeves, described the mini-budget as a “comprehensive demolition” of the conservative government’s last 12 years. She said:
“The costs of the energy price cap will be funded by borrowing, leaving eye watering windfall profits of the energy giant untaxed. [Continues] Working people are left to pick up the bill.
“Borrowing higher than it needs to be, just as interest rates rise. And yet the chancellor refuses to allow independent economic forecasts to be published, which would show the impact of this borrowing on our public finances, on growth, and on inflation. It is a budget without figures, a menu without prices.
What has the chancellor got to hide?”
Dave Chaplin – CEO at ContractorCalculator
Dave Chaplin has long campaigned against the IR35 changes. In an article posted on ContractorCalculator, Dave has shared his thoughts on the IR35 repeal.
“Today, contractors and businesses will be celebrating as Liz Truss and her government have not only kept to their promise but gone further and repealed a legislation that has had a damaging effect on business and contractors’ livelihoods for the past five years.
These onerous reforms were never going to work and were flawed from the start. The recent Court of Appeal Atholl House case further highlighted the structural deficiencies of the legislation.
The new version of IR35 has simply served to pour glue on the economy and prevent growth. The Chancellor has done the right thing and removed an unnecessary burden for firms of trying to solve a complex riddle every time they hire a worker. Today’s bold move by Kwasi Kwarteng may well have given the Conservatives a chance of winning the next general election.
The Stop The Off-payroll Campaign I personally ran for four years spelt out the punitive effect that the legislation would have and it came to pass. My final word to the government on the matter is ‘I told you so – and finally you listened.’“
Seb Maley – CEO at Qdos
In an article on Contractor UK, CEO at Qdos Seb Maley shared his views on the Ir35 repeal. He said:
“The fiscal changes announced today are likely to go down as some of the most pro-contracting in memory.
Repealing IR35 reform is a huge victory for contractors. The changes have created havoc for hundreds of thousands of independent workers, along with the businesses that engage them.
The government mustn’t waste time, though. The last thing contractors and businesses impacted by IR35 need is uncertainty. A clear and robust roadmap for reversing IR35 reform in both the public and private sectors is needed.”
Crawford Temple – CEO at Professional Passport
Contractor UK has also caught up with Crawford Temple, CEO at Profesional Passport. He shared his thoughts:
“Today’s announcement by the chancellor is welcome — the off-payroll legislation has given rise to a proliferation of disguised remuneration schemes that have had a punishing impact on contractors. However, it is imperative that this latest move doesn’t compromise on compliance.”
Chris Bryce – CEO at the Freelancer and Contractor Services Association (FCSA)
CEO at the FCSA, Chris Bryce, shared some words with Contractor UK. He said:
“We’re [The FCSA] delighted to see the misguided reforms of IR35 will be repealed as of 6th April 2023.
Of course, many will say that Kwasi Kwarteng should have gone further and repealed IR35 in its entirety! No doubt many contractors will also be pleased”.
Kate Cottrell – Founder of Bauer and Cottrell and IR35 status specialist
Speaking to Contractor UK, Kate Cottrell, founder at Bauer and Cottrell, couldn’t hold back her delight about the IR35 repeal announcement. She said:
“Woo-hoo and yippee!
This is the best news for contractors, agencies, end clients and consultancies!
There was no way whatsoever that Ms Truss’s promised review of IR35 with further tinkering was ever going to unravel the complete mess that Chapter 10 created.
Repeal may also have a silver lining as it will sort out the few unscrupulous umbrella companies and the numerous avoidance schemes that have emerged since 2017.
Repeal also neatly deals with the embarrassment of the public sector ‘owing’ millions of pounds to HMRC for using CEST incorrectly.
Repeal further takes away the very big headache for HMRC of being unable to actually collect the correct amount of tax and NICs. And HMRC’s tool CEST will of course need a revamp – at the very least. Common sense has prevailed and long may it continue.”
Andy Chamberlain – Director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE)
In a post on LinkedIn, Andy Chamberlain described the IR35 repeal as a “watershead moment”. He posted:
“We weren’t expecting it, but we – along with thousands of contractors, agencies and clients – are delighted. The government has recognised the deeply devastating impact of the reforms to #IR35 in both the public and private sector and has decided to repeal the 2017 and 2021 reforms from 6 April 2023.
IPSE has vociferously and consistently campaigned against the IR35 reforms. Through our research, our media work, our appearances before select committees and in our discussions with MPs, Committee Chairs, Ministers and Prime Ministerial candidates, we have exposed the significant and devastating impact of the reforms. We’ve been able to show that the reforms have hindered the vital and profound contribution of the self-employed sector, creating unnecessary complexity for both contractors and businesses. We are now grateful that the government, under new Prime Minister Liz Truss, has listened to these calls.
But our campaigning on IR35 is far from over. The scrapping of the reforms now returns the responsibility for determining IR35 status to contractors and underlying issues with the IR35 rules still need to be addressed. We hope to work with government to make further progress on these issues in the weeks and months ahead.
We must also be wary of other legislation that could be used to clamp down on freelancers. This could come in the form of Managed Service Company (MSC) rules – where HMRC can deem an accountancy services provider as a MSC provider and thereby deem almost all contractors working with these accountants as liable for PAYE Income Tax and National Insurance contributions.
We will continue to call for government to review the MSC investigations that are causing significant worry to contractors that were actively seeking tax-compliance by using an accountancy services provider.
But for now, this is a watershed moment. We share the delight of IPSE members, and all contractors, across the UK at today’s news and hope that this diverse and vital sector can thrive now that the damaging reforms to IR35 are set to be scrapped.”
Tania Bowers – Global Public Policy Director for the Association of Professional Staffing Companies (APSCo)
In a news post on the APSCo website, Global Public Policy Director Tania Bowers said the following:
“The Chancellor’s Mini Budget promised to be one that drives growth for the UK and it’s clear that the Truss administration is powering ahead with an extraordinary range of changes to boost the economy. The planned repeal in April 2023 of the Off Payroll legislation is a welcome move. APSCo has long called for a review of the measures which have dramatically reduced the flexibility of the skilled independent labour market since they were introduced in 2017 and 2021.
Many of the proposals in today’s announcement will strengthen the appeal of highly skilled, professional flexible working in the UK which is long overdue. The planned changes to Income Tax from April 2023 – in particular the abolition of the top rate of income tax for the highest earners – and reversal on the planned increase in Dividend Tax alongside the IR35 repeal, will encourage more individuals back into the flexible labour market to drive growth at end-engagers.
Having previously called for a reversal of the Health and Social Care levy – which APSCo correctly feared would only serve to drive recruitment, umbrella and PAYE agency worker costs up and exacerbate on-going skills shortages – we are pleased to see it has been scrapped. It’s also promising so see an intention from the Government to make the UK a global powerhouse once again, with the removal of the banker bonus cap likely to strengthen the country’s Financial Services sector.
The plans for growth in specific investment zones is a move that we believe will have a significant impact on the country. However, while the measures announced today will help bolster growth, the lack of skills across the UK remains a cause for concern to achieve these ambitious aims. The changes to Universal Credit and unemployment benefits may drive more people into lower-paid jobs, but it is the high-skilled segment of the workforce that is lacking the resources needed.
Plans to encourage over 50’s back into work will help build skills across the UK, as will the plans to bolster the flexible workforce. However longer-term plans are needed that support broader skills development. There also needs to be complete co-ordination between education institutes, employers, industry bodies and relevant Government bodies to drive a long-term impact.
We look forward to hearing more on the planned immigration review mentioned by the Chancellor, as well as measures to be introduced to support more over 50’s back into work.”
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