On 23 September 2022, the government announced that the IR35 rules on “off payroll” working will be scrapped.
What is IR35 and Off Payroll Working?
The terms “off-payroll working” and “IR35” are commonly used interchangeably because they both relate to legislation that governs the tax treatment of the provision of a worker’s services through an intermediary, such as contractors engaged by businesses via a personal service company, but both form part of the much wider Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) legislation.
When ITEPA 2003 was first introduced responsibility for determining the correct tax status of the engagement sat with the contractor but following amendments to the IR35 rules in 2017 and 2021, responsibility for determining the correct tax status of the engagement shifted to the business engaging the contractor. These changes were introduced to crack down on a particular form of perceived tax avoidance whereby individuals would seek to avoid paying employee income tax and national insurance contributions by supplying their services through an intermediary and paying themselves in dividends.
What Are the Changes to IR35 Rules from April 2023?
In its mini-budget announcement on 23 September 2022, the UK Government confirmed that the rules in Chapter 10 of Part 2 of ITEPA 2003 will be repealed with effect from 6 April 2023 meaning contractors will become responsible for determining the correct tax status of the engagement.
Put simply, this means that businesses will no longer have to assess whether their contractors working through a personal services company (PSC) are within the IR35 rules, and the liability for tax and NI will remain with the PSC. However, the Chancellor said that compliance will be kept under review so it could be that PSCs fall under greater scrutiny.
What Do Business need to Consider?
Although many businesses will welcome these changes, those involved in engaging contractors will need to continue to carefully consider both the existing and future IR35 rules to reduce risk and avoid liability. Key considerations for businesses include:
- The IR35 rules don’t change until April 2023. Businesses engaging contractors in the meantime should continue to adhere with the current IR35 rules and maintain the necessary records of their checks and tax status determinations.
- From April 2023, the rules on employment status don’t change and business remain liable for incorrectly determining employment status.
- The risk of penalties for businesses that continue to pay individuals off payroll when they know they should be treated as employees or workers remain in place.
Do You Need Assistance?
The specialist employment law team at Employment Law Services (ELS) LTD have extensive experience in advising UK Employers on employment status. If you have any queries about your options you can call us on 0800 612 4772, Contact Us via our website or Book a Free Consultation online.