Mini rex rabbit appearing from a top hat, isolated on white
Mini rex rabbit appearing from a top hat, isolated on white

IR35 Is Chancellor’s Rabbit Out Of The Hat!

The Chancellor’s mini-budget included a so-called “rabbit out of the hat” announcement, which was Kwasi Kwarteng’s unexpected decision to repeal off-payroll legislation.  Social media has been ablaze with lots of misinformation incorrectly stating that IR35 itself has been overturned.  It’s important to note that IR35 legislation is still very much in place, and will continue to be even after the budget announcement is implemented.

So what exactly has happened then?  Firstly, you need to know that nothing is changing until April 2023.  And then all that is changing is effectively removing the off-payroll legislation, which until April 2023 still needs to be adhered to.

Come April 2023 businesses engaging contractors through PSCs (personal service company e.g. Joe Bloggs Limited) will no longer be responsible for determining the IR35 status.  So it will revert back to how it was, with the contractors being responsible for determining the IR35 status.  This means that businesses will not have any tax liability if Joe Bloggs gets the IR35 status wrong.

So what does all this actually mean for contractors?  It should be good news because businesses will be able to engage the best contractors for the work needing doing without worrying about the tax status of said contractors. From the contractors perspective, it means they won’t be forced to be taxed as an employee when they aren’t actually an employee!

It is quite incredible for a Chancellor to make such a monumental policy decision to repeal primary legislation without any consultation whatsoever with affected parties.  Kwarteng’s policy change will likely rub salt in the wounds of the many businesses that have spent significant sums on ensuring they are compliant with the off-payroll rules – in one example we are aware of a private healthcare business that spent in excess of £2m implementing the legislation.

Don’t forget that nothing changes until next year, and in the meantime clients must continue operating the off-payroll rules.  That means that client businesses continue to be responsible for  determining tax status for their contractors until the change in April 2023.  This is an incredibly important point as we expect HMRC will be unsympathetic to any tailing off of responsibility in advance of the change.

This is a huge change, and we have recorded a podcast with “Mr IR35” himself, Dave Chaplin, to bring you the best possible advice if you are affected.

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