The government has finally seen sense, as unwieldy IR35 reform is to be repealed

To everyone’s surprise, last Friday’s mini-Budget which was far from mini given it contained a staggering £45billion in tax cuts saw new chancellor Kwasi Kwarteng announce that IR35 reform will be repealed, writes Seb Maley, CEO at Qdos Contractor.

Nobody saw this coming

In pulling this rabbit out of his hat, Kwarteng said the government can “simplify the IR35 rules – and we will”, before revealing that he’s talking of scrapping the new rules outright, in both the public and private sectors.

Did anyone see this coming? Honestly? Prior to the mini-Budget, even the most hopeful of contractors wouldn’t have predicted this.

That’s not to say the news that IR35 reform will be reversed isn’t a welcome development, though. Already, the relief among contractors is clear to see.

So where does this leave contractors?

It’s important to make clear that the dust is yet to settle, and the full details of the incoming repeal have not yet been published. However, here’s what we know, as things stand.

First and foremost, limited company contractors will regain the responsibility for determining IR35 status from 6th April 2023 in both the public and private sectors.

Along with this responsibility, which had shifted from April 2017 in the public sector to end-client organisations and from April 2021 to medium and large end-client organisations, the liability will also transfer – back to the contractor.

In a nutshell, it means contractors will soon assess their own IR35 status once more and will be liable for non-compliance.

I should also point out that the IR35 legislation has not been abolished, as has been misreported here and there. IR35 will remain in place, and compliance will become even more important to contractors.

Was repealing IR35 reform the right decision?

Yes, undoubtedly. The fact of the matter is that IR35 reform had made it more difficult for businesses to engage contractors.

It shouldn’t have, in theory. But as we all know, far too many companies had taken a needlessly risk-averse approach to IR35, choosing to force all contractors to operate on the payroll irrespective of their true IR35 status.

While the news is quite rightly being celebrated by contractors, I can understand the frustration of recruitment agencies and end-clients, though. The government forced these rules upon businesses despite being told by the overwhelming majority of IR35 stakeholders that it was a short-sighted, potential disastrous decision. It seems, belatedly, that the government has finally agreed – the reform did not work.

Those who have implemented the reform compliantly – and I should point out that there are plenty of businesses that have – invested a considerable amount of time and money in this ‘project.’ They will be left scratching their heads, perplexed about one government being so sure about rolling out IR35 reform only for the next government (which is largely made up of the same MPs) backtracking within weeks of being assembled. This alone just goes to show what a contentious issue IR35 is.

Even so, reverting back to the way things once were is absolutely the right thing to do. Contractors can make their own IR35 determinations again – a move which serves to benefit businesses and the UK’s flexible workforce. Both have suffered since the introduction of IR35 reform.

It’s no secret that when the changes arrived, many contractors either; moved overseas, begrudgingly became employees, moved into another line of work or closed down their companies to retire. These decisions were forced by the reform, which dealt a blow to the contracting sector and, in turn, flexible working here in the UK.

The road ahead

There’s no doubt that reversing the reform will be an advantage to contractors, along with benefits for the businesses placing and engaging them.

Of course, the question of why hasn’t IR35 reform been scrapped immediately is a fair one. While it would have been a smart move, I imagine that the government was concerned about the disruption this could cause – as ironic as that may sound.

There are, of course, hurdles to overcome. Again, in theory, businesses should reverse blanket IR35 determinations and contractor bans, but we may need to wait until the government publishes the specifics of repeal to see how things pan out. As always, the devil is likely to be in the detail. Either way, though, I am fully confident that any bumps in the road can and will be managed.

The position of inside IR35 contractors

And there are considerations for contractors currently engaged inside IR35 or working via umbrella companies who are gearing up to declare themselves outside IR35 on April 6th 2023. One concern is that contractors who do this will be more at risk of an IR35 investigation. However, if a contractor has carried out their own ‘due diligence’ – had their contract rigorously assessed – then I don’t necessarily believe this will be the case.

Another potential issue that has been raised is if a contract deemed inside IR35 runs beyond April 6th 2023, which would mean PAYE and NICs could be withheld. In this event, I imagine there will need to be commercial negotiations between the parties. And given the vast majority of inside IR35 engagements result in the contractor operating via an umbrella company, the end-client and agency may need to reissue a contract to the contractor with the new terms.

Finally a brighter future for contracting

So as you can tell, there are questions still to be answered. However, looking ahead, for contractors, and for what must feel like the first time in a long time, I suspect many limited company workers – past and present -- will be looking to the future with a renewed sense of optimism.