Chancellor Kwasi Kwarteng, announced in his controversial mini-budget 2022 last Friday (23rd Sept), that the government will repeal the 2017 and 2021 off-payroll rules – known as IR35.
What is IR35?
IR35 (also known as the off-payroll rules) is the name of the tax legislation that is designed to combat “disguised employment” in situations where a contractor supplies their services to clients via an intermediary, such as a limited company.
IR35 applies (‘inside IR35) when a contractor who is operating via their own intermediary (e.g. limited company), is working for an end-client and is being treated, in the eyes of HMRC, as though they are an employee.
If IR35 applies, PAYE and NICs must be deducted from fees.
What was the IR35 reform in April 2021?
Prior to 6th April 2021, contractors in the private sector were responsible for assessing whether IR35 applied to their contract.
The government changed the IR35 rules from April 2021, switching the responsibility from the contractor to the end-user, forcing many contractors to close their limited companies and move into direct employment (and PAYE) or work through an Umbrella Company.
HMRC’s intention was to make sure that contractors caught ‘inside IR35’ paid broadly the same Income Tax and National Insurance contributions as employees, however the UK economy, contractors and end-clients have suffered since the controversial rules have been in place.
What is now happening?
The government announced in the mini-budget (on 23rd September 2022) that from 6th April 2023, the 2017 and 2021 IR35 reforms will be reversed, and contractors will be responsible for determining their own IR35 status.
This unexpected shake-up will provide a major boost for contractors and hirers of contractors around the country.
It’s important to note that IR35 still exists, and the only changes are to who determines IR35 status.
What does the announcement mean for agencies and end-clients?
From April 2023, end clients will no longer be required to assess a contractors IR35 status (which can be notoriously hard to be sure about), nor will they carry the liability. The status determination (and liability) will be shifted back to the contractor.
The news will be a welcome announcement for many users and suppliers of contract workers, as they will be able to revert to more tax-efficient ways of hiring and supplying contractors using their own limited companies.
Many end-users had blanket-banned the use of limited companies to avoid any threat of tax liability and compliance issues after the April 2021 reform. However, this caused skills shortages for many industries with many firms struggling to attract workers.
The reversal of the 2021 IR35 repeal should mean we will see many end-clients lifting the ban and attracting more contractors using their limited companies back into the workforce.
How Quay Accountants can help?
At Quay Accountants, we’re experienced contractor accountants and are used to changing and adapting with the ever-changing industry to continue to provide excellent, compliant services to contractors.