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Reversal of changes to off-payroll worker rules (IR35)

The Chancellor announced this morning at the “mini-Budget” that the recent changes to the “off-payroll worker” rules (commonly referred to as IR35) are going to be reversed from 6 April 2023. 

This is a welcome change for businesses that have grappled with the requirement to make employment status assessments, and will be well received by contractors who consider that their status as independent third parties (without employment-type rights) should be rewarded with favourable tax treatment.

This does not mean that the employment status question goes away, but it does mean that if a contractor engages with a company (an end user) through a personal services company (PSC), it will be the responsibility of that personal services company to make an assessment as to the employment status of the contractor (for tax purposes).

This means that the end user is not exposed to PAYE or National Insurance contributions (NICs) if the employment status assessment is incorrect. Any such amounts are instead payable by the contractor/their PSC. It remains to be seen whether the HMRC “check employment status for tax” (or CEST) tool will remain available to contractors.

The treasury estimate that this change will cost over £6bn over the next four tax years, but say that the driver behind the reversal is to “simplify the tax system”.

In practical terms, companies and (in particular) contractors should review indemnity wording in contracts to ensure that they are adequately protected in the event of an employment status challenge. Companies should also not take this as a carte blanche opportunity to encourage workers to engage through PSCs, in order to save on employer NICs - if the arrangements are artificial they may be caught by other legislation and powers at HMRC’s disposal.

Mr Speaker, we can also simplify the IR35 rules – and we will.

Tags

reward, tax, ir35, tax policy, employment and mobility tax, public policy, uk tax policy

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