New chancellor Jeremy Hunt has scrapped plans to abolish the changes to off-payroll working rules announced in his predecessor Kwasi Kwarteng’s mini budget, leading to criticism from business and employer groups.
As part of its latest reversal of IR35 reforms, the government will no longer repeal the changes to off-payroll rules from 6 April 2023, as was previously planned in a push to simplify the UK tax regime.
The volte-face by Hunt means that organisations will remain responsible for determining their workers’ status for tax purposes and accounting for any tax liabilities when working with contractors – a move that has caused frustration across the industry.
IR35: what does the new approach mean for employers?
Win the war on talent by successfully navigating IR35
Private sector IR35 changes: what does HR need to know?
Tania Bowers, global public policy director at the Association of Professional Staffing Companies, expressed the association’s anger over the continued instability. “The initial off-payroll repeal was clearly a casualty of the large-scale reversal announced by Hunt where nothing from the mini budget was saved except those policies that were already in the legislative process,” she said.
“Following the roll out of IR35 into the private sector, we saw reports of the country losing highly skilled contract professionals as they faced no choice but to take a full-time role,” Bowers said, adding that “data from IPSE [the Association of Independent Professionals and the Self-Employed] revealed in October 2021 that around 35 per cent of contractors had left self-employment since off-payroll rules came into effect”.
Echoing this, Tim Stovold, head of tax at accountancy firm Moore Kingston Smith, called the reversal “a matter of extreme frustration for businesses that had already started thinking about how their systems and procedures needed to change from April 2023”.
Get more HR and employment law news like this delivered straight to your inbox every day – sign up to People Management’s PM Daily newsletter
Similarly, Paul Farrer, founder and chairman of global recruitment agency Aspire, said that in turbulent times like this freelancers and contractors were needed for businesses to navigate peaks and troughs in demand.
However, he called the recent IR35 news a “a backward step” – not just for workers, “but for the recruitment industry and businesses that rely heavily on the flexibility and skills of the independent workforce”.
While some businesses were likely to feel relieved in the short term about the scrapping of the planned changes, Penny Simmons, legal director at Pinsent Masons, said “fundamental problems with the system” remained.
“In the longer term, IR35 still doesn’t work properly and needs to be heavily reformed,” Simmons said, adding that organisations found the 2021 rules, which will now stay in place, “too burdensome in requiring businesses to take legal responsibility for all the contractors and third parties in their labour supply chains”.
For this reason, she said: “It would be good to see the Treasury take this opportunity to undertake a comprehensive review of the IR35 rules and commit to real reform. That should include dealing with one of the major issues with IR35 – the complex test for determining whether someone should be an employee or self-employed.”
On a similar note, Neil Carberry, CEO of the Recruitment & Employment Confederation, expressed his hopes that the reversal of most of the mini budget policies “will hopefully calm the situation and allow space for the key debate – how to help businesses generate the sustainable growth that will keep public services funded and taxes low, without overstretching the public finances”.
However, he said: “It’s not enough to tear things down – we need to take time to build. Just as scrapping changes on IR35 did not solve the problem of a complex and poorly enforced system, keeping them will not make these issues go away either.”
Instead, he suggested that as too many employment-related policy decisions were “drafted from the headline down”, it was “time to start working from the workplace up, in partnership with employers and employees”.