IR35 reform repeal is scrapped by a government in crisis

On Monday October 17th 2022 – that’s today, the repeal of IR35 reform has been scrapped – a needless, short-sighted decision from a newly formed government that finds itself in crisis, writes Seb Maley, CEO of status advisory Qdos.

It comes less than a month after the now, ex-chancellor Kwasi Kwarteng announced the government’s so-called Mini-Budget – and in that, his bombshell that the off-payroll working rules in the public and private sectors would be abolished.

Reeling

But today contractors are left reeling. Jeremy Hunt, the fourth chancellor of the exchequer in as many months, has effectively torched prime minister Liz Truss’s Mini-Budget, which Kwarteng delivered.

Having already U-turned on the plan to shelve next year’s corporation tax hike, along with the abolition of the removal of the 45p income tax rate, Hunt glumly confirmed contractors’ worst fears -- that the off-payroll rules of 2017 and 2021 will remain in place.

What Jeremy Hunt said on IR35

In his mid-morning, televised statement, Hunt said that "almost all the tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation" would not go ahead. This includes the repeal of IR35 reform. But the chancellor put it beyond doubt, explicitly stating that the government is “no longer proceeding with the…reversal of off-payroll working reforms”.

Having backed Rishi Sunak’s leadership campaign, the fact that Hunt has cancelled the repeal of IR35 reform isn’t necessarily a surprise. Contractors will no doubt remember that Sunak was the chancellor when these changes were introduced in the private sector in April 2021.

Rumours of an IR35 repeal U-turn have been gathering pace, too. Over the weekend, speculation was mounting that the newly appointed chancellor would backtrack on the government’s pledge to repeal the changes.

Speechless at how shambolic this all is 

I’m still lost for words, though. The shambolic nature of decision-making in government in recent months – arguably years – has created such an uncertain climate for anyone working for themselves, irrespective of whether they operate via a limited company and are therefore impacted by IR35, or work as sole traders and aren’t.

But what happens now?

Well, it’s ‘as you were’ for limited company contractors.

That is, unless you’re engaged by a company that qualifies as ‘small’, your end-client will remain responsible for assessing IR35 status.

IR35 liability going forward?

At the same time, the fee-paying party – typically the recruitment agency when involved – will be liable for non-compliance, assuming all legal obligations have been met throughout the supply chain.

It’s a big blow for contractors, many of whom had been left with no choice by risk-averse clients but to operate on the payroll – whether inside IR35, via an umbrella company or even as permanent employees.

This IR35 policy meltdown is the work of a government once known as the ‘party of small business.’ It’s a party that was meant to champion the best interests of the business community’s smallest members -- the self-employed, and entrepreneurs who contribute many billions to the UK economy every year.

The so-called party of business simply chose wrong

While I can understand the government’s need to calm the markets and row back on a number of big tax cuts revealed last month, the decision to repeal IR35 reform was the least controversial. In fact, it was fair, logical and ultimately made sense, both from a moral and economical perspective. The reverse is true of the reversal and how it’s all been handled – it’s almost nonsensical, and it’ll definitely do damage.

In particular, economically, the UK stands to lose out as a result of off-payroll reform remaining in place. Think of the thousands of contractors who left the sector as a direct result of IR35 reform – whether by moving abroad or even retiring. The Treasury will see little, if anything, from these limited companies, which once contributed so much to the government coffers.

This development also means that businesses that rely on these workers must continue to prioritise their IR35 compliance – as has been the case since April 6th 2021 in the private sector and April 6th 2017 in the public sector.

Little comfort, but it's 'as you were' for us too

Now, I imagine there’s little I can say to comfort contractors in light of Mr Hunt’s row back – and the dust is yet to settle on IR35’s latest plot twist. However, the fact of the matter is that more businesses are getting to grips with IR35.

By this, I mean that more genuinely self-employed contractors are being given the opportunity by clients to operate outside the clutches of this legislation. And as has been our mission since these divisive rules were first introduced in 2000, we will continue to work tirelessly to ensure that businesses manage IR35 in a compliant, fair manner.