Initially introduced by the government in 2000, IR35 legislation stops disguised employees from taking advantage of tax-efficient payments via an intermediary (personal service company, or PSC). With the recent announcement that the IR35 reforms will be repealed in April 2023 – here is what you need to know. IR35 isn’t being scrapped, but how it’s assessed within the supply chain is changing.
What is being repealed in relation to IR35?
IR35 isn’t going anywhere in April 2023. However, historical reforms referred to as “off-payroll working rules” are being repealed, and here is what is going to happen.
Before April 2017, contractors working through a personal service company (PSC) were required to assess their IR35 status and ensure they paid themselves accordingly. However, this changed in April 2017 when the government introduced off-payroll working rules in the public sector. From this date, all public sector organisations engaging contractors were required to assess each assignment for IR35 – and contractors couldn’t assess themselves anymore. Similar legislation rolled out in the private sector in 2021, meaning almost every PSC contractor had to rely on accurate and transparent IR35 assessments from the organisation they were working for. Unsurprisingly, many UK companies struggled with this new responsibility, and plenty of contractors were given an “inside IR35” assessment – even those previously outside.
The off-payroll working rules in the public and private sectors saw a significant decrease in contractors working outside IR35 through a PSC, and a huge rise in those working through a PAYE umbrella company. However, the off-payroll working rules will be repealed in April 2023, and this means contractors will be free to determine their IR35 statuses again – just as they could before April 2017. Hopefully, this will take the pressure of end-hirers and result in more workers being able to operate outside IR35 on appropriate assignments.
The IR35 repeal is not an excuse for any worker to suddenly deem assignments outside IR35 – without understanding IR35 and ensuring that every contract is thoroughly assessed. It’s an excellent idea for all temporary workers to have contracts professionally evaluated by a tax status specialist – to ensure compliance with UK tax laws and to avoid any risk of an HMRC investigation in the future.
The government introduced changes to off-payroll working rules in the public and private sectors to stop non-compliance – especially by PSC workers inaccurately assessing their temporary assignments. Therefore, expect the government to proactively review individual IR35 assessments and ensure that workers are doing everything within their power to comply. Also, suddenly switching from inside IR35 to outside IR35 could set off alarm bells – especially if the assignment is essentially the same. Compliance is critical, and engaging with IR35 tax status specialists is a great way to move forward compliantly and with peace of mind. Remember, every separate assignment must be assessed.
“IR35 is certainly not dead and will reawaken”
In an article on ContractorCalculator, CEO Dave Chaplin, an IR35 expert, said:
“When you read the financial impact of the repeal in the Government’s Growth Plan document, you’ll see that there are six billion pounds worth of reasons why all rejoicing would be premature, and why all parties in the supply chain should not be complacent as we approach April 2023, nor beyond.
Off-payroll working is still in statute, and though it is planned to be repealed in April 2023, the original IR35 will remain. IR35 is certainly not dead and will reawaken.”
Off-payroll changes created a “car crash”
The changes to off-payroll working rules created a “car crash” according to Crawford Temple, CEO at well-respected regularly body Professional Passport. He has said:
“Pressing ahead with the Off-payroll legislation in 2017 and 2021 was foolhardy as the government was building new legislation on fundamentally flawed original legislation as most experts highlighted at the time.
Moreover, the legislation opened the floodgates to disguised remuneration schemes, once again highlighted by experts, that have had a punitive impact on contractors’ pockets whilst the perpetrators of the schemes have financially flourished. Implementation of these new rules has cost companies millions of pounds so it is disappointing that the warnings were not heeded before pressing ahead. Implementing Off-payroll has created a car crash and much damage has already been done.”
Top 10 umbrella companies
If you’re interested in using an umbrella company with an FCSA (Freelancer and Contractor Services Association) or Professional Passport accreditation, please check out our top 10 umbrella companies. Some have special offers, and these businesses have excellent reputations within the temporary payroll sector.
