Mini-Budget 2022: Government repeals public and private sector IR35 reform from April 2023

Chancellor Kwasi Kwarteng used today’s mini-Budget 2022 to repeal IR35 reform in both the public and private sectors, stunning and delighting the contractor sector in equal measure.

Mr Kwarteng said IR35 reform had imposed “unnecessary cost and complexity” for “many businesses,” so it will be repealed, “as promised by…the prime minister.”

Actually, Liz Truss only promised that the off-payroll rules would be reviewed, but that's not stopping the contractor sector now celebrating that all IR35 status decisions will be reverting to them from April 2023.

'Free up time and money for businesses'

At chapter 3.44 of Mr Kwarteng’s Growth Plan, the government says: “From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status.

“And [they will be responsible for] paying the appropriate amount tax and National Insurance contributions.

“This will free up time and money for businesses that engage contractors, that could be put towards other priorities.”

'Bold Budget from Kwarteng that abolishes tainted IR35 reforms'

Then, in a rare acknowledgement from HMT, its new boss said his reform would ‘minimise’ the “risk” that genuinely self-employed workers get “impacted” by the off-payroll rules.

Until now, a long line of Treasury ministers, backed by HMRC, have said the IR35 changes of 2017/2021 do not affect the genuinely self-employed, totally at odds with evidence that some organisations have outright banned all limited company workers.

Along with a planned increase in corporation tax from 2023 being cancelled, and the April 2021 rise in NICs being reversed, advisers to contractors are almost lost for words at IR35 reform being U-turned.

“In my living life I have never seen such a bold Budget”, Sid Agarwal of contractor accountancy firm DNS Associates began in a statement to ContractorUK.

“Contractors who have faced nothing but disappointment in the last five years, with exclusion from Covid-19 support packages and the harsh IR35 reforms, have finally something to cheer about.

“The abolishment of the tainted IR35 reforms, is a massively welcome move for the entire contracting industry – hard hit by the undue administration required to comply with the legislation. This will simplify the hiring process, decrease the increase in costs brought by the inside IR35 assignments and bring back small businesses.”

'Agency workers to simply switch back to PSC'

Formerly a tax inspector, CWC Solutions’ Carolyn Walsh told ContractorUK: “I’m pleasantly surprised that the government actually took the right action [on the off-payroll rules].”

“Although there are issues that need to be resolved with the original IR35 legislation of 2000 which now will come into focus again, the reform made it almost impossible for freelance contractors to keep their companies in business, while cutting off access to a flexible workforce for many hirers.

“This won’t mean it’s safe for the majority of agency workers to simply switch back to PSC in order to gain work --  although I’m sure that will be the reaction. But HMRC must leave its obsession with IR35 alone -- for now.”

'Pro-contracting measures'

Asked this morning, HMRC did not say whether it has guidance available for clients, agencies and contractors who may have to undo processes and procedures in place since April 2021 and April 2017.

Instead, HMRC referred ContractorUK to HM Treasury, where the queries also went unanswered (at the time of going to press), yet HMT did point to the costings of revoking Intermediaries legislation reform.

In fact, in ‘The Growth Plan: Policy Decisions;’ IR35 reform being reversed in both the public and private sectors is estimated to lose the exchequer £6.18billion, starting at £1.1bn in 2023/24 and peaking in 2026/27 at £2.04bn.

“The fiscal changes announced today are likely to go down as some of the most pro-contracting in memory,” reflected Seb Maley of Qdos, an IR35 contract review firm.

“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."

'Reduce burdens on business by repealing off-payroll working reforms'

Mr Maley added: “The government mustn’t waste time, though. 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.” 

Also celebrating Mr Kwarteng’s surprise move to “reduce burdens on businesses by repealing the off-payroll working reforms” (as HMT described it), is Professional Passport.

Chief executive Crawford Temple said: “Today’s announcement by the chancellor is welcome  -- the off-payroll legislation has given rise to a proliferation of disguised remuneration schemes that have had a punishing impact on contractors. However, it is imperative that this latest move doesn’t compromise on compliance.”

'Ditching the botched changes will be a huge help to UK organisations'

“It is not enough to simply tear things down,” echoed Neil Carberry, chief executive of the Recruitment & Employment Confederation.

“We also need to build…on IR35 [understanding. But] ditching the botched changes…[represents] a huge help. The changes will provide many businesses with much needed relief.”

In the REC’s statement, Mr Carberry claimed that the confederation has campaigned against IR35, but many organisations recently gave up on pushing to overturn the reform, saying it had been in place for too long.

'Very welcome surprise'

Matt Fryer, managing director of People 2.0 company Brookson Group was among the many IR35 experts who following numerous criticisms of the off-payroll rules by the PAC, the NAO and the House of Lords being simply ignored by government, believed repeal was no longer realistic.

“The government’s sudden repeal of the 2017 and 2021 IR35 changes comes as a very welcome surprise,” Mr Fryer acknowledged this afternoon.

“Most of us in the sector were simply expecting the announcement of a review. This news will be celebrated by contractors who have been fighting protracted appeals against what they believe to be inaccurate tax determinations made by hirers – both in the public and private sectors.”  

'Delighted'

Chris Bryce, of the Freelancer & Contractor Services Association, appears to be the exception, as since taking over the association in January 2022, he has continually said repeal of the 2017/2021 changes was the only way forward for the contractor sector.

Notably in August, Mr Bryce said it, “cannot be right that the self-employed are forced into ‘no-rights-no-benefits employment’ while at the same time being hit for all the employment taxes.”

Today, the FCSA’s chief executive is overjoyed. “We’re delighted to see the misguided reforms of IR35 will be repealed as of 6th April 2023,” Mr Bryce said.

“Of course, many will say that Kwasi Kwarteng should have gone further and repealed IR35 in its entirety! No doubt many contractors will also be pleased”.

'Truss review wouldn't have unravelled the Chapter 10 mess'

Kate Cottrell, one of the UK’s foremost IR35 status experts (who Her Majesty's Treasury has today contacted for input following its boss’s decision to repeal the reform), had almost given up listing the many shortcomings of the April 2021 and April 2017 frameworks.

“Woo-hoo and yippee,” exclaimed the Bauer & Cottrell co-founder. “This is the best news for contractors, agencies, end-clients and consultancies!”

She told ContractorUK: “There was no way whatsoever that Ms Truss’s promised review of IR35 with further tinkering was ever going to unravel the complete mess that Chapter 10 created.

“Repeal may also have a silver lining as it will sort out the few unscrupulous umbrella companies and the numerous avoidance schemes that have emerged since 2017. 

“Repeal also neatly deals with the embarrassment of the public sector ‘owing’ millions of pounds to HMRC for using CEST incorrectly.

“Repeal further takes away the very big headache for HMRC of being unable to actually collect the correct amount of tax and NICs. And HMRC’s tool CEST will of course need a revamp – at the very least. Common sense has prevailed and long may it continue.”