IR35 reform U-turn: what does it mean?

The controversial and unpopular IR35 0ff payroll working rules remain in place after a series of dramatic announcements by new Chancellor, Jeremy Hunt.

The controversial IR35 reforms were introduced in 2017 and 2021. After the September 2022 mini budget, Kwasi Kwarteng announced as part of the growth plan, the repeal of the 2017 and 2021 reforms. Now the government have undertaken a dramatic U-turn and have reverted to the previous rules, which is terrible news for the contracting industry.

IR35 reform U-turn: what does it mean?

In this blog, we look at what this means for end clients that use contractors and self-employed contractors.

What does the IR35 U-turn mean?

The announcement means that employers will remain responsible for determining the employment status of contractors working for them.

For the contracting industry, the announcement means that it is back to where they were before the mini-budget, where companies that engage contractors will be responsible for assessing their employment status.

How is IR35 changing in 2023?

IR35 has been used by businesses to pay staff off payroll. This has been mainly contractors being hired for short-term projects or contracts or through agencies.

The IR35 rules were introduced to counter tax avoidance and to deal with what HM Revenue and Customs called “employment in disguise”. This was because many contractors worked in roles that HMRC considered should have classed as employees under tax legislation and therefore should have been taxed as an employee would be taxed.

Kwasi Kwarteng announced in the mini-Budget that IR35 rules created in 2017 and 2021 would be repealed, effectively taking the industry back to pre-2017 legislation. This announcement meant that from April 2023, workers across the UK would be responsible for setting their employment status and ensuring they pay the appropriate amount of tax and national insurance contributions.

With the new Chancellor now announcing that he was scrapping the IR35 announcements made in the September 2022 mini budget, it means that nothing will change with current IR35 legislation in 2023. Therefore, it will be business as usual for both companies employing contractors and agency workers, contractors and self-employed.

Our view on the IR35 U-turn

In our view, the repeal of the off-payroll reforms was a step in the right direction to help the struggling contracting industry. The repeal would have reduced the administration burden and allowed companies to once again attract a quality workforce.

Businesses that were looking forward to a new era of less complexity and less cost are now back to square one, where they have the burden of assessing an individual’s employment status.

It will continue to mean less contractors being used across all industries and potentially more work being off shored to other countries or more people being forced to work through unregulated umbrella companies.

2017 and 2021 off-payroll rule changes

Here’s a summary of the rules that were introduced in 2017 and 2021 that will remain now going forward.

2017 IR35 reforms

The off-payroll working rules applied where an individual performs a service to the public sector through their own personal service company (PSC), limited company or partnership; and were it not for this arrangement would be classified as an ‘employee’ for tax and national insurance contributions.

Prior to 6 April 2017 the responsibility for implementing IR35 fell on the individual’s limited company (Personal Service Company or PSC) or partnership. It was the individual’s company who was responsible for accounting for any tax and National Insurance due correctly where IR35 was applicable. However, HMRC struggled to enforce these rules.

After a comprehensive review, the IR35 changes from 6 April 2017 shifted the responsibility for ensuring IR35 is correctly implemented in the public sector to the public sector body - rather than the agency or PSC. The meant that public sector bodies were made to decide whether any contracts they entered into with PSC’s or agencies are subject to IR35 legislation. If contractors were deemed to be working within IR35 rules, they would be classified as an ‘employee’ for tax and national insurance contributions.

2021 off payroll working rules

In 2021 there were even more changes to the off-payroll working IR35 rules. From 6 April 2021, all public sector clients and medium or large-sized private sector clients were made responsible for deciding your worker’s employment status.

If a worker provided services to a small client outside of the public sector, you (the worker’s intermediary) continued to be responsible for deciding your worker’s employment status.

If the off-payroll working rules applied, the worker’s fees will be subject to Income Tax and National Insurance contributions.

Tips for contracting outside of IR35

If you have a good understanding of IR35, you should be able to negotiate and have the right conversations around your contracts to ensure you don’t fall into IR35 rules. Here’s our tips for contracting outside of IR35.

Other mini budget U-turns announced that will affect contractors

The new Chancellor also undertook some other U-turns on announcements made in the 2022 mini budget which will affect the self-employed and contractors. These were:

  • Dividend tax: The planned rise in dividend tax of 1.25% will now go ahead in April and the additional rate of tax to higher dividends of 38.1% will also go ahead in April.
  • Corporation tax: For those contractors running a limited company, the planned rise in corporation tax to 25% will now go ahead in April.


In our view, repealing of the off-payroll reforms was a step in the right direction to help the struggling contracting industry and for businesses to reduce their administration burden and attract a quality workforce.

However, it seems that Jeremy Hunt is determined to backtrack on the governments growth plan to protect the public purse and won’t be looking at the IR35 rules for self-employed, agency workers and contractors anytime soon. It’s a blow for many contractors and for those that may have been considering re-entering the contracting industry.

The responsibility for the engagement falls firmly back with end clients. This means that many contracts won’t go ahead because they will not want the administrative burden and potential tax liability of engaging personal service companies.

We believe the IR35 reforms centre around flawed IR35 legislation, real reform and another review of the IR35 rules should take place, but with many other priorities for the UK government to focus on, it’s unlikely this will be seen as a priority.

Here at dns accountants, we have an expert team of IR35 and contractor specialists that can help and advise you on all aspects of off payroll working and IR35 rules. If you need any help or advice on IR35 then please contact dns on 03300 886 686 or email us on enquiry@dnsaccountants.co.uk.

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About the author
Blog 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.

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About the author
Blog 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.


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