IR35 off-payroll working changes from the mini-budget

The Chancellor’s recent mini-budget provided an unexpected announcement for businesses and contractors alike as it was confirmed that the IR35 off-payroll working rules from 2017 and 2021 will be scrapped from April 2023. This means that the original IR35 ruleswill apply from this date.

In this blog, we cover the main points of the changes and advice on what to do next.

What rules are being scrapped?

The 2017 and 2021 reforms to the off payroll working rules required the end client, and not the contractors they hire, to decide if the working relationship resembles as employment. Under existing rules, the fee-paying party (either the end client or recruitment agency) carry the liability. These are the main rules that are being repealed in April 2023.

Since these changes in 2017 and 2021, the contracting industry have had a challenging time and the rules forced many contractors and Personal Services Companies (PSC’s) to seek engagement via Agencies and, in particularUmbrella Companies and also meant many contractors left contracting altogether.

What are the new IR35 rules?

The Treasury Growth Plan Document says: The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.

From the limited amount of information provided in the Treasury Growth Plan, it is likely that things will go back to how the rules worked pre-2017, with contractors themselves being responsible for administering their IR35 status.

Whilst the changes announced will come into effect from April 2023, there is it is not yet fully clear on the application of the rules, particularly for businesses under the current rules, between now and next April.

Until April 2023, businesses engaging contractors should continue to consider the application of IR35 and ensure they keep the necessary records of their checks and the tax status determinations.

Has IR35 been abolished altogether?

Off-payroll working is still in statute, and although it will be repealed in April 2023, the original IR35 will remain. The changes merely mean that that contractor’s PSC will once again be responsible for determining their employment status and the tax and NIC they pay.

Do the new changes apply to both private and public sector?

Yes, the changes will apply to both private and public sector.

Are the changes certain?

The repeal of the Off-payroll rules is currently published intent but not in the statute. The next step is the drafting of the Finance Bill and presented to the house for first reading, and then follow a set process through Parliament.

Initial drafts for an Autumn Bill are likely to be seen around the start of November and this will provide more details and give the industry more clarity. It’s likely if the process is smooth, that it will reach royal asset in February 2023, ready for implementation in April 2023. However, as with all things in the workings of government, nothing is 100% certain.

What happens between now and April-2023

The important thing to remember, the current off-payroll rules remain in place, with end-clients responsible for determining the employment status of their contract workforce.

It is likely that many clients will be less willing to hire new contractors between now and April 2023 as there is more work and risk associated under the current rules. Whereas, in 6 months’ time they will be able to hire contractors without the work and risk currently involved. So, it’s likely that companies will put off hiring contractors in the interim.

I closed my limited company using Members’ Voluntary Liquidation (MVL) when can I open a new company?

If you have liquidated the company using Members’ Voluntary Liquidation (MVL), you need to be aware of what is known as the targeted anti-avoidance rule, or TAAR. This is a rule aimed at preventing the practice of liquidating a company and starting up an identical one simply to avoid tax (phoenixism).

The TAAR prohibits you from being involved in a similar trade or activity for at least two years after a members’ voluntary winding up.

Can I get an outside IR35 contract from the hirer?

The end client is still responsible for assessing the employment status and the underlying tax liability for incorrect assessments till 6 April 2023. So, they will need to decideif IR35 applies or not.

If I am inside IR35 now, can I negotiate to be outside IR35 on the same contract?

It likely you won’t be able to negotiate to be outside IR35 on the same contract you are on now. You need to speak to the client.

Moreover, if the same contract has been assessed as inside IR35 and after the changes its deemed to be outside, there is a high risk that it will be challenged by HMRC and caught under IR35. This is “Friday to Monday” situation, where you leave work as an employee on Friday and come back to work on Monday as a contractor, doing exactly the same job and paying less tax then you were before.

It is worth remembering that it’s perfectly possible for professional contractors to have a mix of contracts both inside and outside of IR35 – but it means you’ll need to be organised and ask for professional advice if you need it.

Who bears the liability if an incorrect status was assessed in the period April-2021 to April 2023?

Responsibility and liability for assessing whether IR35 applies remains with the end-user until April 2023. If the end-user determines that IR35 applies, responsibility for operating PAYE and NICs remains with the “fee payer” (generally the entity which contracts directly with and pays the PSC) rather than the PSC.

Summary

This is excellent news for businesses and contractors alike and should revitalise the contracting market, following several very challenging years for the industry. The answers to these questions will become clearer as April 2023 draws closer, for now the industry is waiting for further details and clarification.

I see the abolishment of the tainted IR35 reforms, is a welcome move for the entire contracting industry who have been hard-hit by the undue administration required to comply with the Off-payroll working legislation. This will simplify the hiring process, decrease the increase in costs brought by the inside IR35 assignments and bring back small businesses to the industry.

Here at dns accountants we have a specialist contracting team that are experts in contracting, IR35, PSCs and Umbrella Companies. Contact our team for help and to answer all your contractor questions on 03300 886 686, or email on enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.