IR35 Off Payroll Shock as 2017 & 2021 Rules Abolished by Chancellor Kwasi Kwarteng

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IR35 Changes Abolished

There was a shock in the Chancellor’s mini budget today as the Chancellor has reversed the 2017 and 2021 changes.

He isn’t getting rid of IR35 altogether as the original rules still stand. However, the updates brought in by successive Conservative Governments have have been taken out.

This applies from April 2023.

Contractors to Decide Own IR35 Status

The Chancellor, Kwasi Kwarteng is taking us back to where we were before, i.e. where contractors decided their own IR35 status.

HMRC will not be very pleased with this.

Since IR35 was brought in during 1999 not a single Chancellor or government has been IT Contractor friendly – until now.

They all said that the self employed were very important and then set out to strangle them in IR35 legislation, strengthening it every time.

Cameron and Osborne Lied to IT Contractors on IR35

Indeed David Cameron and his Chancellor Osborne came to power telling the PCG that a Conservative government would look at IR35again.

They did look at IR35 when they did get in. They were as good as their word. However, when they did look at IR35 again they decided to strengthen it and hired an extra 30 HMRC employees in three locations to enforce IR35 more strongly.

IT Contractors to Decide Their Own IR35Status Again

Now IT Contractors can go back to deciding their won IR35 status – with the risk still that they could be investigated by HMRC.

However, figures showed that IT Contractors would be more likely to be struck by lightning than be investigated for IR35.

Of course, some people are hit by lightning and some contractors will be investigated for IR35 – but they have the opportunity to insure themselves against an IR35 investigation.

IR35 Changed Unexpected

This is the day that contractors have been waiting for for a long time.

It came so unexpectedly too – out of the blue.

The Chancellor and Prime Minister Liz Truss had given no inclination that this was going to happen.

This is Christmas come early for IT Contractors.

It is an early Christmas too for those companies who use freelancers.

Government Penalized Companies Who Used IT Contractors

Companies make business decisions as to whether they went to hire permanent employees or contractors. They know their businesses and they know the percentages of contractors and employees which is best for there businesses.

However, those businesses were being threatened by the Government and HMRC that if they made wrong assessments of contractors statuses the companies could be financially penalized.

Companies Penalized for Using Contractors

So, in fear of this, many major companies announced that they would no longer hire contractors and others forced contractors to become permanent employees.

This was all done by successive Governments to raise more taxes. However, they were penalizing those companies by forcing them to artificially inflate the percentage of permanent employees against their better judgment.

This is the best news for IT Contractors and freelancers for a very, very long time.

IT Contractors Down the Pub

If you are a permanent employee don’t be surprised to see your company’s contractors heading to the pub this Friday early evening to celebrate.

Company Boardrooms may be busy this afternoon too with many a wee dram consumed.

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    2 COMMENTS

    1. Just how is this good for contractors?

      Finally at the point where companies are on the hook for writing bad contracts with issues of command and control, and HMRC being on my back about the difference between actual working practices and the contract itself, particularly with respect to MOO and substitution.

      This sounds like a sop to businesses not to contractors as far as I can see.

      Sure, the initial thrust of companies was to put everyone inside IR35 but the market was already working nicely to push up inside rates to compensate (£750 outside, £1100 inside), and slowly they were becoming less risk averse. HMG departments which took this on two years earlier had already been over that curve and started coming to sensible decisions.

      Now it’s back to … “well you don’t pay tax, we’ll cut rates” and everyone from the company to the agencies making sure in their contracts that you indemnify them for any tax due, however late, and however they’ve managed to screw things up with HMRC on your behalf.

      I will not be rejoicing down the pub.

    2. Covid and IR35 kyboshed contracting for me. Inside IR35 contracts are not worth the candle. Not sure i’d return, tbh. This government will collapse soon enough. It has the John Major death vibe about it. It’ll be all change again soon enough either with Keith or a last ditch Tory. We’ll see, give it a year, if this change looks like it will stick, good news.

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