One of the many surprises the Chancellor, Kwasi Kwarteng, announced during the so-called September 23rd ‘mini Budget’ was to repeal the ‘off payroll’ rules in April 2023.
[Oct 17th 2022 – the repeal has now been cancelled by new Chancellor Jeremy Hunt. We will keep this article online for the sake of completeness.]
Most people watching the Chancellor’s speech will never have heard of IR35, let alone ‘Off Payroll’. But, for people who provide professional services via their own companies (contractors, consultants, etc), this was very big news.
Let’s first explain what ‘IR35’ and ‘Off Payroll’ are, and then look at the significance of this news – for professional contractors. You can read our full guide to IR35 here.
What is IR35?
The Intermediaries Legislation – IR35 – became law in April 2000. It is contained in Chapter 8 of ITEPA 2003. The rules were put in place to prevent so-called ‘disguised employment’, whereby a traditional 9-5 worker could leave their role, only to return to the same role – but this time as an employee of their own limited company.
If caught by the rules, the worker’s income is subject to PAYE – in a similar way to an ’employee’, although without any of the employment rights associated with employment.
Over time the tax differential between a permanent employee and a limited company director/employee has narrowed significantly, but in 2000, there was more of a gap – as dividends are not subject to national insurance.
What is ‘Off Payroll’?
The ‘Off Payroll’ rules were introduced in 2017 for public sector businesses, and in 2021 for private sector businesses. The rules are contained in Chapter 10 of ITEPA 2003.
The Treasury, convinced that the original IR35 rules were being frequently flouted, bolted on a new piece of legislation which made clients responsible for determining the employment status of contractors, not the contractors themselves.
The ‘fee payer’ is now responsible for making any tax deductions if the worker is deemed to fall within IR35.
As a result of punitive debt-transfer provisions, and cronic uncertainty about how to comply with the Off Payroll rules, many clients elected to ‘blanket ban’ limited company contractors, rather than risk penalties for non-compliance.
Many small limited company professions either left the market, or were forced to use umbrella companies.
What happens in April 2023?
According to the mini Budget statement, section 3.44, the ‘Off Payroll’ rules (Chapter 10) will be repealed from 6th April 2023, and the original IR35 rules (Chapter 8) will apply again from this date.
From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions.
Until this date, everything stays as it is – with clients responsible for determining IR35 status.
It seems unlikely that we will see a completely clean switch over to the old status quo on 6th April 2023, as it will take some time for the market (clients, recruiters and contractors alike) to adjust.
We will update the site with expert comment and advice in the run-up to April 2023.
For ultimate peace of mind and defence in the event of an IR35 investigation, take out Qdos’ award-winning IR35 insurance – from just £99 per year. This covers up to £50,000 of professional representation and potential tax liabilities up to your chosen level of indemnity.