IR35 reforms to be scrapped from April 2023

As part of the Government’s highly publicised ‘mini-Budget’ announced in September 2022, UK Chancellor Kwasi Kwarteng revealed that controversial reforms to IR35 rules will be scrapped. The changes will come into effect from 6^th April 2023, at the start of the new tax year.  

The IR35 reforms in question involved changes to the off payroll working rules, and were implemented in 2017 and 2021. They caused major upheaval in both recruitment and contracting, while also affecting self-employed workers, agencies and of course employers themselves.  

In essence, the reforms shifted the responsibility for determining the employment status of a worker to the end client. Employers were required to reassess the IR35 status of the contractors they hire, to determine whether the working relationship should be legally designated as employment or a self-employed engagement.  

The aim of the new IR35 rules was to crack down on the promotion of disguised remuneration schemes. The Government was concerned that by hiring contractors through intermediaries (such as personal service companies or agencies) employers were skirting certain obligations with regards to tax and national insurance.  

A “simpler system” 

The IR35 reforms were often criticised for their complexity, costing businesses time and money to ensure they were complying with the new rules. The changes were both controversial and unpopular, with criticism coming from many different UK sectors.  

However, the UK Chancellor is now aiming to sweep away unnecessarily complicated rules and regulatory burdens for businesses, as part of its wider strategy to boost economic growth.  

With this in mind, the off payroll working rules will be reset to pre-2017 status at the start of the next tax year. This follows an interview with Prime Minister Liz Truss over the summer, in which she mentioned plans to review IR35.  

According to FT Adviser, Kwasi Kwarteng said in a recent statement: 

“To achieve a simpler system, I will start by removing unnecessary costs for business. We can also simplify the IR35 rules and we will. 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.” 

What does this mean for employers and contractors? 

Once 6^th April 2023 comes around, contractors and self-employed workers will be once again responsible for determining their employment status. And of course, paying the appropriate tax and NI contributions.  

It is hoped that this will free up both time and money for businesses, and make it easier for contractors and employers to work together. It could also reduce the risk that genuinely self-employed workers are negatively impacted by IR35 rules.  

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