Some will be pleased at the tax cuts and financial incentives laid out by the Chancellor in his mini budget today 23rd September. Others may worry about the cost to the economy, mirroring the debate points during the Conservative Party leadership battle. Regardless, our Prime Minister’s promises in relation to IR35 are now live.
The Chancellor has announced the repeal of the 2017 and 2021 reforms to IR35 – see more on IR35 from 2000. In layman’s terms this means that those changes, which require the client to determine IR35 status, are to be scrapped from April 2023. In turn this means the complex rules that pass liability for accounting to HMRC for deemed employment taxes to the agency supplying a company contractor or to the hirer, are to be dumped.
Agencies and hirers will breathe a sigh of relief, as will accountants used to servicing personal service companies (PSCs). However umbrella companies, that have largely been the beneficiary of the 2017 and 2021 changes, will likely lose out as contractors once again shift back to the PSC model.
Before celebrations in the agency and contractor sector commence it would be wise to consider the options open to the government. Yes the 2017 and 2021 reforms will be repealed, but this does not mean that the original rules, under which the contractor can simply file a tax return without indicating that IR35 rules apply, will be reverted to. The Chancellor could for example reverse the burden of proof on the contractor. This would mean that the hirer and agencies are out of the firing line, but that a contractor providing personal services is required to pay deemed employment taxes unless it can prove that the engagement is not one of deemed employment. Just saying!