One of the least expected announcements in the Chancellor’s recent Growth Plan was the rollback of the IR35 off-payroll working rules to the position prior to the 2017 and 2021 reforms, which is set to take effect from 6 April 2023.
The 2017 and 2021 reforms moved responsibility for status determination from the contractor to the client, be it in the private (2021 reform) or public (2017 reform) sector. The one exception was when working for a small private sector client where responsibility has remained with the contractor.
If caught under the off-payroll working rules, the contractor has been taxed as an employee with income tax and national insurance contributions (NICs) deducted.
The repeal of the 2017 and 2021 reforms is currently just the government’s intent and is not guaranteed until the next Finance Bill reaches Royal Assent – something far from assured given the political climate.
Rollback rules from 6 April 2023
Contractors providing their services via an intermediary company (or partnership) will once again be responsible for determining their own employment status.
- If a contract is deemed to be outside the off-payroll working rules, the contractor can simply withdraw the income on the most favourable tax basis, or it can be left undrawn in the company.
- If within the rules, the contractor will be responsible for calculating income tax and NICs, and then paying these over to HMRC.
Although there a very strict deadline for complying with the tax obligations if caught under the rules, one advantage is that a 5% flat rate expense deduction is given when calculating the income to be taxed.
Clients who have implemented a blanket ban on using company contractors are likely to reverse their position, with the contracting market revitalised. However, this will probably not happen immediately, with both contractors and clients needing time to adjust to the new status quo.
HMRC’s guidance on the current off-payroll working rules, which continue to apply until 5 April 2023, can be found here.
