What are the new IR35 changes? Will it affect my business?
IR35 changes coming into place April 2023
Chancellor Kwasi Kwarteng has recently announced that reforms to the off-payroll working rules, known as IR35, are to be scrapped from April 2023.
What is IR35?
IR35 is designed to assess whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying tax.
It is two sets of tax legislation that are designed to combat tax avoidance by workers, and the organisation hiring them, who are supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.
Some contractors and their clients try to take advantage of this tax efficiency by working as if they’re self-employed, when for all intents and purposes they’re employees.
How are the IR35 rules changing?
Back in August prime minister Liz Truss indicated that she would review the IR35 reform.
In the recent mini-Budget the Chancellor said that workers, rather than businesses or public authorities, would once again be responsible for determining their employment status.
He said: “To achieve a simpler system, I will start by removing unnecessary costs for business. We are going to simplify the IR35 rules. 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.”
Penny Simmons, legal director at law firm Pinsent Masons, said: “Businesses will likely welcome the Chancellor’s announcement that the government will repeal changes to the IR35 rules that have created significant compliance and tax risks for businesses.
“However, that doesn’t necessarily mean it’s the end of the IR35 story. The rules will still exist – it’s just that contractors will once again be responsible for compliance and payment of tax. Businesses will remain exposed to tax risks by virtue of other tax rules and the corporate criminal tax offences – if they pay contractors off-payroll when they know that the contractors should be taxed as employees.”
Simmons added that many organisations will be frustrated with this news after having invested a significant amount of time and money on compliance.