Mini Budget 2022 – Off-payroll working (IR35)

IR35 regime

Among possibly more eye-catching headlines, last week the Chancellor made a significant announcement in respect of the IR35 reforms by announcing that these will be repealed from 6 April 2023. Changes were made to the IR35 regime in April 2021, aimed at preventing tax avoidance through the use of intermediaries between clients and workers. Many have welcomed the decision as a positive step to re-introduce flexibility into the UK workforce, but others complain at the sudden U-turn and fear employers may now look to make redundant those self-employed individuals who were taken onto the payroll as employees when the reforms came in only 15 months ago.

From 6 April 2023

The Government Growth Plan 2022 has set out that, from 6 April 2023, workers providing their services via an intermediary will once again be responsible for determining their own employment status and paying the appropriate amount of tax and National Insurance contributions. The objective is to free up time and money for businesses that engage contractors that could be put towards other priorities. To enact the proposal, the next Finance Bill will need to be drafted, which has not been published yet.

Prior to 6 April 2023

IR35 rules will continue to apply to any large and medium sized businesses that engage contractors through an intermediary (such as by a personal service company). Under the current rules, the onus is on the business receiving the service to carry out a multi-factorial assessment as to whether or not the contractor would be considered an employee of the business if they were hired directly.

The HMRC “Check Employment Status Tool” (CEST) may be considered of use in any assessment as a starting point, however, the use of this tool is not legally required, and if results are conflicting, then other avenues may be preferred. Notwithstanding this, if a large business does use the CEST tool to determine the status of its contractors and it gives an “inside IR35” result, that business may need to think twice before it ignores that assessment.  If the tax saving is significant enough, then the business will need to notify HMRC that it is going against the CEST assessment, as a result of the Uncertain Tax Treatment (UTT) rules, introduced on 1 April 2022.

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