There was a lot that was announced in the Chancellor’s statement to parliament on Friday that had been heavily trailed so came as no surprise, and there was the odd thing that had been speculated about but only confirmed during his speech. Then there were the surprises – the things that no one had expected – or the things that had been expected but not on the scale that was announced.
The most immediately relevant of those announcements was on IR35, and the utterly unexpected statement that, from April 2023, the IR35 reforms first introduced back in 2017 (which really only took effect in the private sector in April 2021) would be repealed.
Simple as that… Years of back and forth, delays, disagreement, concern, anxiety and uncertainty swept away.
For anyone needing reminded, the off-payroll working rules (commonly referred to as IR35) are the rules designed to ensure that “contactors” performing a role in a similar/identical manner to a permanent employee – regardless of the existence of a Personal Services Company (Limited Company) – pay the same amount of tax.
Pre-2017, the decision as to whether a role was essentially the same as a role performed by a permanent employee (inside IR35), or could be distinguished from the role of a permanent employee and therefore entitled to benefit from certain tax advantages (outside IR35), was the responsibility of the individual operating the limited company. Any liability for tax arising from an incorrect determination sat with the individual operating the limited company. The risk, such as there was any, belonged to them.
That all changed in 2017 when the new rules transferred the responsibility for the determination of whether the role was inside or outside of IR35 to the end client – the entity to which the contactor services were provided. Liability for unpaid (or underpayment of) tax also transferred from the limited company to what was referred to as the “fee- payer” – the entity that paid the limited company – most commonly the recruitment business.
The aim of the reform was to stop the promotion and mis-selling of disguised remuneration schemes, however the legislation has received plenty of criticism.
It caused huge disruption and added unnecessary complexity to the temporary/flexible labour market with large numbers of businesses who’d previously depended on the services of limited company contractors deciding to outright ban their use. Those who continued to engage limited company contractors found themselves with a significant compliance burden and potential liability for underpayment of tax if they got anything wrong. Recruiters were impacted too.
Maybe most importantly, those genuinely self-employed contractors found themselves with far fewer opportunities than had been the case prior to the introduction of the new rules, forcing them out of self-employment in order to secure continuity of work.
Friday’s announcement cleared all of that disruption and disappointment away and limited company contractors will, from April next year, once again be responsible for determining the status of their assignments and paying the appropriate amount of tax and NICs.
If clients or candidates have any questions in relation to last Friday’s announcement or its impact on their hiring strategy, please contact me on 01786 446651 or firstname.lastname@example.org