Changes to the IR35 rules introduced from 2017 to 2021 have just been repealed by Chancellor Kwasi Kwarteng.

The HMRC uses the IR35 rules to work out if a non-payroll worker is a contractor or a disguised employee. Off-payroll working rules makes sure that people working like employees, but via their own companies, pay a very similar amount of tax and national insurance as other employees. It also means that the responsibility for determining whether the off-payroll working rules apply shift from the individual’s PSC to the client organisation employing them.

Tim Stovold (head of tax for Moore Kingston Smith) said, “The justification for the off-payroll rules being introduced was that there was a very low level of compliance with the IR35 rules and HMRC did not have the resources to effectively police the system – given their estimate of 400,000 contractors potentially within the rules”.

These rules will be repealed from the 6th of April 2023, Stovid added, “The repeal of these rules from 6 April 2023 means that the contractor will instead be responsible for ensuring they pay the correct amount of tax and NIC for the services provided”.

There was a mainly positive reaction in the Chancellor’s decision:

Penny Simmons (Pinsent Masons) responded, “Businesses will likely welcome the chancellor’s announcement that the government will repeal changes to the IR35 rules that have created significant compliance and tax risks for businesses. It’s just that contractors will once again be responsible for compliance and payment of tax. Businesses will remain exposed to tax risks by virtue of other tax rules and the corporate criminal tax offences – if they pay contractors off-payroll when they know that the contractors should be taxed as employees.

John Chaplin (BDO employment tax partner) worries that this repeal might cause some tax avoidance, “If the clock is turned back, will we simply have a return to non-compliance? While compliant businesses and contractors are in a healthy position, today’s announcement could help open the door to those wishing to promote tax avoidance.”

Tim Stovold agrees with this point of view, “In the six months leading up to change back to the old system in April 2023, HMRC is going to have to decide between allowing widespread non-compliance or dedicating significant resources away from other areas to improve compliance in this area.”