IR35 Changes to Be Reversed from April 2023

On Friday, 23rd September, Chancellor Kwasi Kwarteng announced the reversal of IR35 as part of his mini-budget from 8th April 2023.

This sudden change means the legislation, intended to ensure contractors pay the appropriate level of tax, will have been active for only two years in the private sector by the time it’s removed.

What is IR35?

While IR35 has only applied to the private sector since April 2021, it has affected the public sector since 2017, with the legislation drafted back in 2000. Originally intended for implementation in the private sector in April 2020, the Coronavirus pandemic pushed its rollout back.

Before the rollout, ‘off-payroll workers’ and contractors were operating through ‘personal limited companies’ and working for a single client rather than as a sole trader, and thus, potentially paying less tax. IR35 was designed to ensure these ‘off-payroll workers’ and contractors paid the appropriate amount.

The changes were controversial, with some decrying them as “a mess”.

What’s changed?

Nothing yet. As it was rolled out in April 2021, IR35 still applies until its repeal on 8th April 2023. After which, personal service companies resume responsibility for their employment status and determine how much tax and National Insurance they’ll pay.

Even with its upcoming removal, IR35 has already had an impact. Many off-payroll workers chose to liquidate their personal limited companies via a Members Voluntary Liquidation (MVL) as they were no better off than if they operated as sole traders.

How will IR35’s removal affect my company?

Once the changes are repealed, off-payroll workers and contractors can operate out of limited companies while serving a single client and pay the tax appropriate to that company’s structure.

Additionally, the liability has transferred from the fee-paying client back to the contractor, along with the financial risk.

A former Chancellor, Sajid Javid, vowed to review IR35 legislation in the Conservative Party’s manifesto prior to the 2019 general election, and the current Chancellor announced the axing of IR35 as part of several measures he hopes will simplify the tax system and make the United Kingdom more competitive.

“In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses. So, as promised by My RHF the Prime Minister, we will repeal the 2017 and 2021 reforms.”

Chancellor Kwasi Kwarteng.

Summary

IR35 legislation, rolled out to the public sector in 2017 and the private sector in 2021, is to be reversed from 8th April 2023. Chancellor Kwasi Kwarteng announced the changes in the September 2022 mini-budget alongside other measures to simplify the tax system and make the United Kingdom’s economy more competitive. Without IR35, off-payroll workers and contractors can operate out of personal limited companies and provide their services to a single client while paying the appropriate status of tax, as opposed to the amount they would pay as a sole trader.