The Chancellor of the Exchequer, Kwasi Kwarteng, announced in his 'mini-budget' on the 23rd September 2022 that the 2017 and 2021 IR35 changes (hereafter referred to simply as "IR35" for brevity) will be repealed with effect from the 6th April 2023. The repeal of IR35 had been expected for a number of weeks after the new Prime Minister, Liz Truss, promised a review of the 2017 and 2021 changes
Repeal of IR35 Changes
The repeal of IR35 is long overdue, having done a considerable amount of damage to the UK economy, with ludicrous rules that not even the Governments very own departments could understand or comply with. Hence, the repeal of IR35 will be welcomed by many, especially those whose businesses and livelihoods have been adversely impacted by the rules
A full explanation of what IR35 (aka the off-payroll working rules) is, and what the 2017 and 2021 changes were, are set out here and here.
The IR35 changes were rolled out to the public sector back in April 2017, and were then extended to the private sector to businesses with 50 or more employees on the 6th April 2021
The IR35 changes have been every bit the disaster they were predicted to be. In terms of the private sector, a survey of 3,750 contractors by IR35 Shield found that 47% of the contractors reported that some of the firms that they had previously worked for had now completely banned the use of contractors altogether. Moreover, 58% of the contractors divulged that some of the companies that they had once worked for had moved work abroad, and 35% of the contractors disclosed that some firms had completely cancelled projects altogether
Another report from the Association of Independent Professionals and the Self Employed (IPSE) found that 70.8% of contractors reported that the IR35 changes had been more damaging to them than either Brexit or the Covid-19 pandemic, and that 35% of contractors had abandoned self-employment altogether.
Essentially, the IR35 changes were the invention of penny wise pound foolish short termist bean counters. The changes didn't even achieve the greedy objectives behind them - to increase the tax take, because ultimately they completely undermined what was once one of the UK's key economic advantages - its flexible labour market. Prior to the IR35 changes, contractors could be taken on and let go as and when required, making the resourcing and implementation of projects more viable and manageable. This was no longer possible under the revised IR35 rules, thereby making projects more expensive and risky. The net effect of that was to stifle economic growth, thereby reducing tax take in the process.
Review & Reaction
The repeal of IR35 in terms of the 2017 and 2021 changes has been on the cards for a number of weeks. As we highlighted in a previous article, the new Prime Minister, Liz Truss, announced during her leadership campaign that she would be reviewing IR35, with repeal of IR35 one of the options.
Liz Truss, told The Sun that: “The changes that have been made to IR35 are all about trying to treat the self-employed the same as big business. But the fact is, if you’re self-employed, you don’t get the same benefits as being in a big company. You don’t get paid holidays, you didn’t get those benefits. So the tax system should reflect that more. I believe that we can grow the British economy faster. But we need to back business to deliver and we need to stop putting so much red tape, so much tax on business, and we need to get on with delivering things quicker.“
The repeal of IR35 will restore flexibility to the UK labour market, thereby providing the economy with greater scope for growth
The repeal of IR35 was formally announced by the Chancellor of the Exchequer, Kwasi Kwarteng, in his mini-budget on the 23rd September 2022.
The Chancellor stated in his announcement relating to the repeal of IR35 that: "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."
The repeal of IR35 means that the regulations that apply will revert back to the originals rules, with contractors assessing their own tax.
Welcoming the repeal of IR35, the CEO of IR35 Shield, Dave Chaplin, stated: "Today, contractors and businesses will be celebrating as Liz Truss and her government have not only kept to their promise but gone further and repealed a legislation that has had a damaging effect on business and contractors’ livelihoods for the past five years. These onerous reforms were never going to work and were flawed from the start. My final word to the government on the matter is ‘I told you so – and finally you listened.’"
The CEO of Qdos, Seb Maley, added: "Repealing IR35 reform is a huge victory for contractors. The changes have created havoc for hundreds of thousands of independent workers, along with the businesses that engage them. [However], The government mustn’t waste time. The last thing contractors and businesses impacted by IR35 need is uncertainty. A clear and robust roadmap for reversing IR35 reform in both the public and private sectors is needed."
