Changes to IR35 were outlined in the recent mini-budget. Dave Chaplin, CEO of IR35 compliance solution IR35 Shield, explores and explains what these changes could be and how they might work.
On Friday, 23 September 2022, the Chancellor, Kwasi Kwarteng, announced an intention to repeal the off-payroll working legislation from April 2023.
The industry is still reeling from the shock announcement, particularly as it came out of the blue and without formal government consultation. The most we expected was whether Prime Minister Liz Truss would deliver on her promise to review the legislation.
If a repeal does happen, it will result in contractors again being responsible for assessing their IR35 status in line with the original intermediaries legislation that has been alive since 2000.
The IR35 story is one which ITNOW has covered.
- IR35 and off-payroll working: 5 tips for consultants
- Seven questions every contractor should ask about IR35
- So, you want to go contracting or freelancing?
Not dead yet
To borrow from the words of Mark Twain: ‘Reports of the death of IR35 have been greatly exaggerated’, and we will await to hear more in the next Finance Bill 2023-24. As outlined in the government's growth plan, the financial impact of the repeal presents six billion pounds worth of reasons why jubilance would be premature and why all parties in the supply chain should not be complacent as we approach April 2023.
The off-payroll reforms have proved very unpopular and have only operated against contractors, businesses and the UK's flexible economy.
Certainly in my opinion, the Chancellor has done the right thing and removed an unnecessary burden for firms, that of trying to solve a complex riddle every time they hire a worker.
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Before the private sector rollout in April 2021, the legislation was already in place in the public sector and implemented in 2017. Both have significantly impacted the public and private sectors from the hirers and contractors' perspectives, with the challenges well documented in the media.
Government departments have faced more than £250 million in tax bills because of non-compliance and getting their assessments wrong. Many contractors faced blanket bans by hiring firms, so they were forced to close down their limited companies, work through umbrella firms or move abroad for work.
So what happens now? The repeal of off-payroll is currently an intention. The next Finance Bill will need to be drafted, laid before the house for a first reading and then travel through Parliament. Initial drafts for an Autumn Bill will likely be seen around November, reaching Royal assent sometime in February or March 2023.
Experience tells us that delays can happen at the last minute, and for now, off-payroll is still binding law.
So, I advise all parties to carry on as usual for now but have a transition plan ready. But, beware, if off-payroll goes, IR35, in its original form, may be revived and could return much more potently.
Advice to contractors:
- Contractors should not ignore IR35 because enforcement will happen.
- HMRC has much more data and many more tools available to crack down on tax avoidance and will continue to enforce IR35 from 2023.
- Contractors must be aware of the Management Service Companies Legislation - avoid "tax loss" insurance policies that cover repayment of taxes and penalties.
- Educate yourself on the original IR35 legislation. Conduct your IR35 assessments to know that you are operating 'outside IR35' and pay the correct tax.
- Stay informed and be prepared.
- Consider obtaining a tax investigation service.