IR35 reforms announced in mini-Budget 2023

A radical change to the off-payroll working rules (also known as IR35) was announced by the Government in its mini-Budget of 23 September 2022. From 6 April 2023 it will no longer be the case that the client or end-user bears the burden of determining the tax status of individuals who provide their services through intermediaries (typically personal service companies), or for paying NICs and tax in relation to those services. The previous IR35 reforms in the public sector (2017) and in the private sector (2021) have proved to be controversial.

First, they create a due diligence burden  for end-users and any others in the contracting chain, secondly they create for the end-user a potential liability for NICs and tax. Also, the test for determining status for tax purposes has been hard to navigate with any certainty, as reflected in ambivalent outcomes produced by an online Government tool (CEST) designed to assist businesses in this regard. 

The Government stated that from April 2023, "workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions". Of course, it does not follow that tax and NICs will necessarily be due since such individuals may be self-employed for tax purposes. The Government also commented that, "This will free up time and money for businesses that engage contractors, that could be put towards other priorities."

This appears to be good news for businesses, representing a reduction in red tape that directly affects them. However, the commercial reality may be different. While the individual providing their services will have to conduct their own due diligence in future, this may result in their fees being increased and further, commercial indemnities between the parties may reverse the position. Since the introduction of the 2017 and 2021 reforms, use of personal service companies has declined sharply. It remains to be seen whether the April 2023 changes will reverse this trend.