IR35 Reforms Mini Budget 2022

As of April 2023, the Treasury has declared that the IR35 reforms to the off-payroll working rules would be repealed.  As a result, as of April 6, 2023, independent contractors working for private or public organisations through an intermediary like Managed Service Companies will once again be responsible for determining their employment status and paying the correct amount of tax and national insurance contributions.

Due to the IR35 reforms implemented in the public sector in 2017 and the private sector in 2021, the burden of determining an individual’s employment status has been passed on to the organisation employing their services. However, these regulatory changes will be rolled back by the government.

The government is taking the first steps toward simplifying the tax system by repealing the IR35 reforms, as disclosed in the Treasury’s Growth Plan paper issued immediately after the Chancellor presented his ‘mini-Budget’ this morning.  The report claims that the shift would allow businesses to reinvest money and effort into other contractors.  In addition, the potential for off-payroll rules to have an adverse effect on legitimately self-employed workers will also be reduced.

Businesses will undoubtedly applaud the Chancellor’s declaration that the government will repeal IR35 reforms that have raised compliance and tax issues. While this is good news for contractors, it does not mean that IR35 will be abolished; instead, the onus for ensuring compliance and making tax payments would again fall on the contractors themselves. In addition, businesses face tax risks from other tax rules and corporate criminal tax offences if they pay contractors off-payroll when they should be taxed as employees.

It is also unclear what position HMRC will take when dealing with businesses that have accidentally violated the rules during this interim time. This is another area in which there is a lack of clarity. The repeal of the IR35 legislation represents a significant win for independent contractors. The reforms have wreaked havoc on the lives of hundreds of thousands of self-employed workers as well as the businesses that hire them. The fiscal adjustments made today will probably be remembered as some of the most pro-contracting in recent history.

On the other hand, the government cannot afford to waste any time. Uncertainty is the very last thing that independent contractors and businesses that will be impacted by IR35 need. To roll back the IR35 reform, both the public and commercial sectors require a road map that is transparent and comprehensive.