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Repeal of IR35 reforms

27 September 2022. Published by Robert Waterson, Partner and Kelly Thomson, Partner

The Chancellor announced at last week's “mini-Budget” that the recent changes to the “off-payroll” working rules (commonly referred to as 'IR35') are going to be reversed, from 6 April 2023.

This change will be welcomed by a number of businesses that have struggled to grapple with the requirement to make employment status assessments, particularly at a time when labour supply chains are already under pressure as a result of the pandemic. 

Contractors will also no doubt welcome the changes, given the general view that their status as independent third parties (without employment-type rights) should be rewarded with favourable tax treatment. Importantly, however, this change does not mean that the employment status question goes away: what it does mean is that, if a contractor engages with a company (an 'end user') through a personal services company (PSC), it will be the responsibility of that PSC to make an assessment as to the employment status of the contractor (for tax purposes). Failure to operate the rules properly will leave PSCs/contractors exposed. 

Whilst the end user is no longer exposed to PAYE or NICs if the employment status assessment is incorrect, companies should also not take this as a carte blanche opportunity to encourage workers to engage through PSCs without checks and balances, as if the arrangements are artificial, they may be caught by other legislation and powers at HMRC’s disposal. The related issue of a contractor's status for employment rights purposes also remains live and, often, fraught with complexity.