IR35 Reforms Announced For April 2023 – What Does This Mean For Tech Contractors?

The first budget announcement from Chancellor Kwasi Kwarteng brought with it somewhat surprising amendments on IR35 off-payroll legislation, as he heralded a “new approach for a new era, focused on growth” – so what does this mean for contractors and for organisations that engage their services?

IR35 reforms, previously introduced in the public sector in 2017 and most recently in the private sector in 2021, firmly put the responsibility of determining a contractor’s working status on the organisation engaging their services and the duty of operating PAYE and NICS on the “fee-payer”. These reforms have now been repealed.

From 6 April 2023, UK-based contractors working for an organisation via an intermediary, regardless of working in the private or public sector, will once again be responsible for determining whether IR35 applies and if so, operating PAYE and National Insurance Contributions (NICS).

"Having been through quite a few IR35 changes over the years I am very interested to see what impact this will have on the contracting community in the UK... It would be great to see customers wanting to engage with contractors a lot more given the reduced ‘risks’ they face."

The government’s Treasury Growth Plan document unveiled following the Chancellor’s mini-budget announcement, states that it will repeal the most recent IR35 reforms as it updates the UK tax system and cuts back on “unnecessary and excessive regulation.”

The Growth Plan document says: “The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.”

With the changes, the government states it will hope businesses that use contractors could have more time and resources to focus on other priorities, as well as reduce the likelihood of self-employed workers being negatively impacted by off-payroll rules.

The positive changes for individuals working through their own limited company do not end there, with the announcement also getting rid of the Health and Social Care Levy and planned NICS rise, in a bid to boost growth and keep at bay a possible recession.

Summary of key points from the 2022 mini-budget:

• reversal of the April 2022 increase in National Insurance rates with effect from 6 November 2022
• cancellation of the Health and Social Care Levy that was to be introduced in April 2023
• cancellation of the 1.25% addition to dividend tax rates that was introduced in April 2022, with effect from April 2023
• basic income tax rate cut to 19% a year early, from April 2023
• abolition of 45% rate of tax on incomes above £150,000 from April 2023
• cancellation of planned corporation tax increase to 25% in April 2023: the rate will remain 19%
• increases in thresholds for Stamp Duty Land Tax with immediate effect
• from April 2023, repeal of the ‘off-payroll working’ measures introduced in 2017 and 2021
• confirmation of energy cost support packages
• regulations change so pension funds can increase UK investments
• new and start-up companies are able to raise up to £250k under a scheme giving tax relief to investors
• share options for employees doubled from £30k to £60k

On the announcement, Jack Cascarino, Head of Contracts at Understanding Recruitment, said, “Having been through quite a few IR35 changes over the years I am very interested to see what impact this will have on the contracting community in the UK. We have seen businesses adapt and change to each legislation change, but this could be a very welcomed change for contractors working through PSCs. It would be great to see customers wanting to engage with contractors a lot more given the reduced ‘risks’ they face. This all being said, contractors need to make sure they approach each determination with the same amount of care and attention. For me, is a real positive for us to take into 2023!”

“Many of the proposals in today’s announcement will strengthen the appeal of highly skilled, professional flexible working in the UK which is long overdue. The planned changes to Income Tax from April 2023 – in particular the abolition of the top rate of income tax for the highest earners - and reversal on the planned increase in Dividend Tax alongside the IR35 repeal, will encourage more individuals back into the flexible labour market to drive growth at end-engagers,” commented Tania Bowers, Global Public Policy Director for the Association of Professional Staffing Companies (APSCo) on the budget changes.

2017 and 2021 legislation on IR35 will be in place into the repeal comes into effect in April 2023.

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UPDATE: Since the appointment of new Chancellor, Jeremy Hunt, the repeal of IR35 reforms mentioned above have since been reversed (full article here).

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