Last Friday’s ‘mini-Budget’ had new Chancellor Kwasi Kwarteng announcing that the controversial IR35 reform will be repealed. After promising to review IR35, Liz Truss’s government has gone one step further and repealed the reforms introduced in 2017 and 2021.

But what does this mean in practice?

What is IR35?

HMRC’s working rules state whether a contractor or freelancer operating through their limited company is ‘genuinely’ self-employed for tax-paying purposes.

Historically, the self-employed worked out their own employment status. But HMRC introduced changes in the public sector in 2017, which made it the client’s responsibility to determine the contractor’s IR35 status.

HMRC then introduced this reform in the private sector in 2021, with some differences. For example, contractors who work with smaller clients are still responsible for working out their own status.

Check employment status for tax – GOV.UK (www.gov.uk)

So what does the IR35 reform change actually mean for Contractors?

Full details have not yet been published, so there is much speculation. However If the reversal goes ahead as planned in April 2023, self-employed contractors and freelancers who work through their own limited company will once again be responsible for working out their own IR35 status.

It is important to note that the legislation has NOT been abolished and compliance is still required. The reversal is still only a government aim and isn’t yet law and will need to go through parliament in the usual way. However, this change should, once again, allow businesses to employ contractors much more easily moving forward.

Alex Christie, MD of Engineering Recruitment company Energi People comments

“We were very encouraged to hear the news from the Chancellor this week – this will have a huge impact on the recruitment market, encouraging more companies to again take contractors for important projects that require specific skills and experience.”

Alex continues, “These reforms – which were meant to grow business – actually stagnated the market leading to a candidate shortage. A large number of contractors were forced to either become employees, work through umbrella companies or give up altogether! This move will benefit businesses hugely, giving them flexibility to employ an experienced, specialised workforce back into their projects”.

So what’s Next for IR35 reform status?

There is no doubt that this announcement will be to contractors advantage, as well as the companies placing/engaging them. But why are the changes not happening immediately?

It’s a fair question. It could be a concern for those already embroiled in the reforms and how this would affect them. We will need to see how this will pan out, but the indicators are that any and all issues can be overcome.

For now? It’s a watch and wait – continue as normal but definitely start working on a transition plan.

Further Reading:

• Go to Contractor Jobs
• Check employment status for tax – GOV.UK (www.gov.uk)
• Read more on our Energi People Blog Page