IR35 reform to be repealed

IR35 reform in public and private sectors will be scrapped in April 2023

Edited 17/10/22:

The planned repeal of the off-payroll working rules (IR35 reform) has been cancelled as per an emergency statement issued by Chancellor of the Exchequer, Jeremy Hunt.

Chancellor of the Exchequer, Kwasi Kwarteng, has today announced that IR35 reform will be repealed, effective from 6th April 2023.

In Parliament to present his emergency mini-budget in response to inflationary pressure, Kwarteng spoke about the need to simplify the tax system, before going on to announce that the government planned to extend that approach to the off-payroll working rules.

“We can also simplify the IR35 rules – and we will,” he said. “In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses. Of course, we will continue to keep compliance closely under review”, he added.

This development will be very welcome news for contractors, many of whom have been subject to risk-averse and, in some cases, non-compliant IR35 determinations made by public and private sector organisations in the last five years. 

IR35 reform, first introduced in the public sector in 2017 before being rolled out in the private sector in 2021, was in the spotlight during the Conservative Party leadership campaign when Liz Truss suggested that it would be reviewed if she became the Prime Minister.

However, its repeal was unexpected, particularly so soon, given that no review had been formally discussed or announced by the new Prime Minister.

The repeal means that, effective from the 6th of April 2023, contractors operating through a personal service company will be responsible for their own IR35 status determinations, as was the case prior to the introduction of these unpopular changes. 

Tax cuts at the heart of the budget

Alongside the repeal of IR35 reform, the Chancellor announced a range of other measures aimed to contribute to the growth of the economy while reducing the tax burden for millions of workers and making the UK an attractive place for businesses to invest.

The other measures announced in the emergency mini-budget include:

Cancellation of the planned increase to Corporation Tax

Corporation Tax will remain at 19% rather than 25% as proposed by the previous government.

Changes to Income Tax thresholds

The basic rate of income tax has been cut to 19% from 20%. The additional rate of 45% has been abolished; earnings over £150,000 are now subject to the higher rate of tax at 40%.

Reversal of the Dividend Tax Increase 

The 1.25 percentage point increase to Dividend Tax introduced by the previous government has been reversed, effective April 2023.

National Insurance 

The 1.25 percentage point increase to National Insurance, introduced earlier this year by Boris Johnson’s government, will be cancelled in November.

Business Rates Relief and Employer’s National Insurance

On newly-occupied business premises, in designated tax sites, there will be no business rates to pay at all. And any employers hiring staff in those sites will be exempt from Employer’s National Insurance Contributions on the first £50,270 of the employee’s salary.

Energy support package

The already-announced measures for both domestic consumers and for businesses were confirmed during the mini-budget, at an estimated cost of £60bn.

 
We will be issuing guidance over the coming days to both contractors and businesses to help guide you through these changes.