Government announced plans to repeal the IR35 tax rules from 6 April 202330/09/22
On 23 September 2022, the Chancellor delivered what has been reported as a ‘mini-budget’ to the House of Commons, which included a number of tax changes and reforms (the Treasury’s announcement with links to the Growth Plan 2022 can be found here).
One of the changes announced is the repeal of the off-payroll working rules (also known as IR35) introduced in the public sector in 2017 and later extended to the private sector in 2021.
The IR35 regime
The IR35 regime was introduced in April 2000 to ‘crack down’ on individuals carrying out “disguised employment” to avoid paying income tax and national insurance contributions (NICs), by supplying their services through a personal services company (“PSC”) or other relevant intermediary. Under the IR35 rules, payments made for such work are currently subject to income tax and NICs where such individuals would be employees if they worked directly for the client.
Originally the PSC was responsible for determining whether the IR35 rules applies, but this responsibility was moved to the employer in 2017 (in the public sector) and in 2021 (for large and medium private sector clients). This placed a significant burden on employers who are currently responsible for:-
- having effective compliance procedures in place for determining whether someone supplying their services is a genuine independent contractor working through their own business, or is really an employee for tax purposes;
- communicating that decision to the worker, the PSC and anyone else in the supply chain, by way of a “status determination statement” and dealing with any appeals where the outcome is challenged;
- putting in place robust contracts with suppliers and agencies to limit liability for any breach of the IR35 rules;
- ensuring that income tax and NICs is paid at the correct level on payments for any work which falls within IR35; and
- paying any under-paid income tax and NICs due, plus potential fines and interest, in the event of a breach (which can be substantial).
What does this change mean for employers?
With effect from 6 April 2023, individuals supplying their services through a PSC will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs. This should simplify matters for employers.
The Growth Plan states that “This will free up time and money for businesses that engage contractors, that could be put towards other priorities. The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules.”
It is not yet clear how HMRC will be approaching any inadvertent non-compliance by employers in the interim period. It is anticipated that HM Treasury and HMRC will publish further guidance for individuals and employers to provide them with certainty on the rules and their approach to compliance during this interim period.
In the meantime, to minimise risks, employers should continue to comply with the current rules. In advance of 6 April 2023, we recommend that employers prepare for the changes by undertaking a review of their existing working practices and arrangements with external contractors.
How Capsticks can help
The rules and legal requirements relating to the current IR35 regime are complex. Our employment team has significant experience of supporting employers with compliance (by drafting policies, contracts and delivering training to employees at all levels) and also dealing with any issues that may arise.
If you would like to access advice, training or further guidance on the current rules or how the proposed changes will affect your organisation (either generally or in relation to a specific case), please contact Raj Basi, Laura Horovitz or Alistair Kernohan.