The mini-budget released at the end of last week included a surprise statement from the Chancellor, Kwasi Kwarteng, stating that the 2017 and 2021 IR35 reforms will be repealed from 6th April 2023.
In our last blog post, we noted that Liz Truss had promised a review of the IR35 legislation if she became Prime Minister, which she has absolutely delivered on, and some!
This will be welcome news for contractors, recruitment businesses and client’s alike, as this now releases the risk from the fee-payer in the chain, which caused many clients to act with a high level of caution with many choosing to blanket rule inside IR35 (which goes against the legislation, as this fails to show that ‘reasonable care' had been taken to determine the result) or to cease using contractors altogether.
Many were skeptical of the promised IR35 Repeal review – and whether this would come to fruition or if this was an empty promise. When Kwarteng announced the U-turn in Friday’s mini-budget 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.”
When the new rules come back into effect on 6th April 2023, it will mean that the responsibility of determining a contractor’s IR35 status will revert back to the contractor, along with the tax liability, as it had been for the 20 years previous to the initial reforms in 2017 and 2021.
This will now give contractors and clients renewed confidence in contracting again, which will bring a shift in the market, both in the public and private sectors. This will likely mean many contractors will come back out of permanent roles and re-enter the contractor market, and clients will be much more willing to work with contractors again.
However, it is worth noting that the current rules will remain in place until 6th April 2023 and we will continue to ensure compliance is maintained in line with the current legislation until then. Compliance will continue to be kept under review, meaning that the HMRC will continue to investigate for any non-conformities with clients and recruitment businesses, which means we must continue to be compliant. This also means that contractors should continue to protect themselves with appropriate contract terms, working practices, and IR35 insurance.
Even though the IR35 Reform Repeal has been promised from April next year, it is still important that good working practices from both clients and contractors continue to take place to limit any tax liability in the event of any investigation by the HMRC.
This announcement is ultimately good news for the contracting industry, and we will continue to be here to support both contractors and clients throughout the process. If you have any queries, please do not hesitate to contact us.