IR35 reforms repealed – what does this mean for your business?
*As of Monday 17th October, the decision to repeal IR35 off-payroll rules has been reversed and so they will remain in place*
In the Government’s ‘mini budget’ announced on Friday 23rd September, it was confirmed that the IR35 tax reforms are to be repealed from April 2023. Also known as the off payroll working rules, IR35 reforms were first introduced to the public sector in 2017 and the private sector in 2021.
However, the rules attracted much criticism with many voices raising concerns regarding the evident pitfalls in the legislation. In fact, there was even a Stop the Off-Payroll Tax campaign dedicated to asking the government to reconsider introducing the rules in the first place.
Finally, after months of bad publicity and further criticisms, the decision was made to repeal to changes to the off-payroll rules and revert back to the original processes.
What are the IR35 rules?
The IR35 rules were brought in to ensure that employment taxes are paid by people who provide services to a business without being directly employed, often through a personal service company (PSC) or similar.
The rules switched the responsibility of calculating whether these taxes applied from the contractor to the business engaging them for their services. However, with the repeal of the legislation, the decision on whether these taxes apply or not will fall back to the contractor.
Why have the IR35 rules been repealed?
The IR35 rules were largely deemed as unsuccessful with Governmental departments publishing reports in the summer of 2021 showing unsustainable outcomes. For example, the Department of Work and Pensions (DWP) was given a tax bill of over £88m for incorrect IR35 determinations. By February 2022, the National Audit Office reported that the total tax bills handed to government departments in light of the IR35 reforms was a huge £263m.
As more businesses adopted the IR35 changes, it quickly become clear that the tools and legislation used to determine a contractor’s IR35 status were flawed. With mounting costs, confusion, and indecision the Government’s hand was finally forced to bring an end to the IR35 off-payroll changes.
How does the IR35 repeal affect my business?
If you work with external contractors and had made changes to the way you engage with them, you’ll likely need to revert back to the processes you used before the IR35 rules were introduced. However, just because the decision to decide if taxes apply has switched back to the contractor it doesn’t mean you are no longer responsible. Under corporate criminal tax offences rules in 2017, a business is vicariously liable for the criminal acts of its employees and other persons associated with it, even if the senior management of the business was not involved or aware of what was going on.
If you have made changes to your payroll software or HR practices you’ll need a strategy to reverse these changes in time for the repeal in April 2023. If you need help or advice on adapting your Sage 50 Payroll software, we offer a range of payroll training options to suit all budgets.
