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Edited 17/10/22:
The planned repeal of the off-payroll working rules (IR35 reform) has been cancelled as per an emergency statement issued by Chancellor of the Exchequer, Jeremy Hunt.
The IR35 reform repeal development was initially announced by the Chancellor in the mini-Budget. An announcement which revealed a raft of tax changes – from the scrapping of IR35 reform to the reversal of the recent national insurance and dividend tax increase and much more.
But without a doubt, the news that IR35 reform will be repealed next year was the major talking point for contractors – and a big unexpected bonus.
In this article, which will be updated as more information becomes available, we answer the key questions being put to our experts.
The reform – also known as the off-payroll working rules – is set to be abolished in both the public and private sectors on 6th April 2023.
As a result, contractors will be transferred back the responsibility for assessing their IR35 status, which had become the end-client’s duty after the introduction of reform in the public sector (in 2017) and private sector (in 2021).
In addition, contractors will be liable for IR35 once more. It means from 6th April 2023, HMRC will investigate contractors for non-compliance, rather than the fee-paying party.
It should be stressed that nothing will change until this date, with reform remaining in play until then. Liability for the period between when reform was introduced (either 2017 or 2021) and 6th April 2023 will remain with the engager and retrospective enquiries could still be carried out. And until the Finance Bill is passed, the changes are not set in stone.
No. The IR35 legislation referring to Chapter 8 Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) has not been scrapped.
IR35 status must continue to be assessed and the applicable tax paid to HMRC.
In time, this is a possibility. Kwasi Kwarteng, Chancellor of the Exchequer, said in his mini-Budget statement that "[the government] can also simplify the IR35 rules – and [they] will."
How this will play out, in reality, remains to be seen. Determining IR35 status has always been difficult, with ease of misinterpretation, reliance on previous judge rulings and the holistic manner of coming to a conclusion.
HMRC’s idea of simplifying IR35 guidance thus far, however, has been the failed Business Entity Tests and more recently, the Check Employment Status for Tax (CEST) tool, which has been deemed not fit-for-purpose by numerous experts.
Updating the tests on which status are based – many of which date back several decades – has been put forward several times but this is highly unlikely to happen before April 2023.
Until any further guidance is released, contractors should prepare according to the rules in place prior to the reforms.
It depends. Unlike the rules for agencies and clients under Chapter 10, the requirements for contractors’ due diligence under Chapter 8 of the IR35 legislation have never been clear-cut.
With the responsibility shift, however, we would suggest the following:
Either way, contractors should look to reassess their IR35 status ahead of 6th April 2023. This stands regardless of any material change in circumstances, including but not limited to, the undertaking of a new role.
If you were assessed by your existing client as ‘inside IR35’ or are working on the payroll, it could prove difficult to evidence that you are in fact outside IR35 with the same end client if there are no material changes to working practices. This is working on the assumption that the status assessment made by the end-client is accurate.
If you aren’t convinced that your IR35 status is correct, an independent IR35 contract assessment will offer an objective, expert view.
Many organisations bypassed the legislation and determination process entirely by making ‘policy decisions’ not to engage personal service companies or insisting that they work on the payroll irrespective of their true status. Until both your contract and working practices have been rigorously assessed, it would be unwise to revert back to contracting outside IR35 from 6th April 2023.
However, should an expert IR35 status review deem your contract outside IR35 (and assuming that your client is comfortable engaging your services in this way), you can be confident of your compliance.
As things stand, there’s nothing to suggest that you will be at a greater risk of being investigated by HMRC. However, to further mitigate this risk, IR35 insurance can be purchased.
If you are operating inside IR35 or on-payroll, in theory, there’s nothing preventing you from returning to working through your limited company. You should, however, consider the following:
1. Your client is not obligated to engage contractors any more than you are obligated to accept working on the payroll. If you intend to remain with the same client and are looking to switch back to your limited company, you should discuss this with them.
2. If you closed your limited company via MVL (Members’ Voluntary Liquidation) within the past few years, there may be tax implications to opening a new company if returning to similar activities. You should discuss this with your accountant.
3. If you were assessed by your existing client as ‘inside IR35’ or are working on payroll, it would be extremely difficult to prove that you are in fact outside IR35 with the same end client if there are no material changes to working practices.
At the time of writing, it seems unlikely. Prior to the introduction of IR35 reform in the public sector in 2017, contractors providing services to a public sector body for more than six months or earning in excess of £220 per day were required to provide proof of their status to their end-client.
The assurance rules for the public sector were never legislated. Therefore, we expect that these rules will not be reapplied following the repeal of IR35 reform. Public sector contractors should proceed to determine their own IR35 status and acquire the necessary due diligence.
No. HMRC’s CEST tool, which was introduced to help end clients assess their contractors’ status, was not made mandatory.
It’s therefore highly unlikely that contractors will be obliged to use CEST. It will, however, remain accessible to contractors to use.
There are risks associated with relying on CEST, though. The tool has been deemed largely not fit-for-purpose by many, including the House of Lords. Additionally, public sector bodies such as The Home Office and DWP faced multi-million-pound tax bills for non-compliance under the off-payroll working rules despite relying on the tool.
With the tool yet to hold up in a tribunal, we wouldn’t recommend relying on CEST for a robust IR35 status assessment.
As has always been the case, contractors should review both the written agreement and working practices.
An IR35 contract assessment is a widely trusted method to help determine your status. Having specialised in the legislation since its introduction in 2000, Qdos have carried out over 150,000 expert contract assessments. Incidentally, recent tribunal rulings have placed greater emphasis on the written contracts between the parties, particularly cases involving high profile television and radio personalities.
For further clarity regarding your IR35 status, a working practices review is also highly recommended. In the event of an IR35 investigation, HMRC will first inspect the contract, before scrutinising your working practices – these reflect how the service is provided day-in-day-out.
Yes. Qdos have never stopped providing free IR35 contract assessments for contractors when one of our IR35 insurance policies is purchased. We have no intention of stopping the service.
We will, however, look to improve our processes and offering to contractors, which may or may not amend the nature of the free IR35 contract assessment.
While IR35 insurance is not mandatory, it’s acknowledged as essential cover for contractors.
Full IR35 insurance offers peace of mind and financial protection, in the event of an HMRC investigation. This cover includes; representation costs relating to defending your case against HMRC (up to £50,000), plus tax and national insurance liability, interest and penalties arising from an IR35 enquiry (up to £250,000).
Ask away! One of our team will get back to you!