Last Friday, the new Chancellor, Kwasi Kwarteng, unveiled the governments 2022 Growth plan which includes an intention to repeal IR35 to allow “businesses to get on with business. Since then, news has been circulating that IR35 “is dead”. But is it really that simple? We think not.
What will be the impact of the changes?
Firstly, the repeal of the Off-payroll (IR35) rules is currently published intent not statute. Indeed, it will not be effective until it is passed in the next Finance Actin the first quarter of next year. Given that the Growth Plan has prompted divisions amongst conservative MPs, a lot could happen between now and the date at which the repeals are set to become effective. Until then, Off-payroll reforms remain binding law.
Secondly, the repeal of the2017 and 2021 IR35reforms does not mean the end of IR35 rules altogether. Rather the burden will shift (back) to contractors regarding compliance with IR35 rules and payment of tax. Contractors working for an organisation via a private services company (PSC) will once again be responsible for determining their employment status and paying the correct amount of tax and NI contributions. This will immensely reduce the complications and end-user liabilities associated with IR35, thereby removing a barrier to employing UK contractors.
However, for contractors it may be a different story. The reforms initially came about because HMRC estimated that at least 80 000 contractors were not applying the existing rules correctly. If HMRC thinks this is still the case, we may yet see further changes for contractors
What should companies do now?
In short, not a lot.
It will be interesting to see the extent to which the current regime will be enforced but as it stands HMRC can choose to investigate as far back as 20 years. Since it does not look like the repeal will be retrospective, suppliers and users of contractors need to ensure that they remain compliant with the current rules until the repeal takes effect in April 2023.
Off course, some planning will be necessary – notably for roles likely to straddle the date of repeal. It is worth noting that the 2017 Criminal Finances Act obliges companies to take reasonable steps to prevent the facilitation of tax evasion in their supply chains. This could mean that a pre-2023 end-client determination that a role is inside IR35 (and therefore not permitted to be performed by a contractor) may be evidence enough that all involved are aware of the contractor’s true tax status post-repeal. As it is unclear if and how the system will develop, for the next quarter it looks like a wait-and-see game.
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