TaxOct 11 2022

What Kwarteng’s IR35 changes mean for businesses

  • Describe what the "mini" Budget's changes to IR35 mean
  • Identify the impact on businesses
  • Explain the consequences for contractors
  • Describe what the "mini" Budget's changes to IR35 mean
  • Identify the impact on businesses
  • Explain the consequences for contractors
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Approx.30min
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What Kwarteng’s IR35 changes mean for businesses
(Bloomberg/Charlie Bibby)

It is these OPW reforms under chapter 10 that are being repealed. From April 6 2023 the position reverts to what it was before April 2017 (public sector) and before April 2021 (private sector.

Contractors who provide their services through their personal service company will again be solely responsible for assessing their own employment status and deducting tax and NICs from their fees if they conclude they are a deemed employee. 

A welcome development? 

Kwarteng’s promise that the repeal of the OPW rules will save businesses time and money from April 2023 onwards is a credible one. Businesses will be freed from the considerable burden of producing status determination statements (SDS), confirming what they believe the contractor’s true employment status to be and reasons for their decision.

Businesses will not have to deal with appeals from contractors who challenge a decision about their employment status. And businesses will make an immediate financial saving on the fees they pay to 'inside IR35' contractors as liability to pay the employer’s class one NIC shifts back to the contractor’s PSC.

Many risk-adverse businesses would make employee status determinations in all, or virtually all, cases.

These may seem like attractive propositions to businesses but as a result of the OPW rules coming into force, many businesses made blanket decisions to only engage these contractors through employment agencies or umbrella companies.

As the intermediary in the supply chain immediately above the contractor’s PSC the agency or umbrella company is the "fee payer" responsible for deducting the tax and NICs from the fees paid by the end client. 

Will businesses be willing to disrupt their contracts with agencies or umbrellas that may offer them other administrative benefits such as right-to-work checks? 

Also, under current HMRC rules the end-user client remains responsible for producing the SDS with “all reasonable care”. If HMRC considers that the end client has failed to use all reasonable care in making its status determination the client, not the agency or umbrella, defaults to being the fee payer responsible for tax and NI deductions. 

HMRC can also impose penalties on the end client if it believes it has deliberately contrived arrangements to reach a self-employed rather than employee determination.

For this reason many risk-adverse businesses would either make employee status determinations in all, or virtually all, cases or insist that their agencies only supplied them with workers who were employed directly by the agency or umbrella itself. 

We do not know if HMRC will now take a light touch approach to the businesses’ compliance under the current rules.
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