Abolishing IR35

The Chancellor has announced plans to abolish the IR35 off payroll working rules for the public and private sector from April 2023

The measure will cost up to £1.1bn a year from 2023-24 tax year, rising to £2.6bn by 2026-27.

The off payroll working rules were introduced in 2017 for the public sector and 2020 for the private sector, cutting the number of people who could work on a contract basis and introducing a complex set of rules to identify whether an individual should be defined as self employed or paid on a PAYE basis.

John Chaplin, employment tax partner at BDO said: ‘The Chancellor’s commitment to simplification is certainly likely to be welcomed by individuals and businesses alike. The current IR35 rules were however implemented to tackle non-compliance with the old rules.

‘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.’

This view was echoed by Caroline Le Jeune, head of tax at Blick Rothenberg. ‘Tearing up the recent changes to off payroll working is opening the door again to what was previously criticised as tax avoidance. A complete reversal to the trends of the last 20 years,’ she said.

Tim Walford Fitzgerald, private client partner at HW Fisher, said: ‘Cutting the red tape around off payroll working is a huge move by the Chancellor, and should help to massively simplify the tax process for businesses and offer greater freedom to contractors.

‘It’s certainly a welcome reversal to a regime that previously led to cautious and time-limited clients making deductions that may have been entirely unwarranted if truly objective reviews of both contracts and actual practices could have been undertaken.’

James Warwick, employment tax partner at Deloitte, said: ‘Today’s announcement effectively shifts the burden of policing compliance around assessing who is deemed as an ‘employee’ from employers, back to HMRC – as individual workers will assess their own status.

‘Individuals who may have felt that they had been unfairly characterised as employees previously, are likely to be pleased to have the opportunity to take their own view of their status from April 2023 and possibly reduce their tax bills.

‘While businesses who have invested significantly in adapting to the previous rules will benefit in the longer term from reduced red tape, in the short term they will still have the headache of transitioning their policies.

‘HMRC’s approach to policing the old rule set will likely have to adapt. It’s possible we may see a reduction in the number of people on UK payrolls from the start of next year and a commensurate increase in the numbers of self-employed workers.’