Reforms to the off-payroll working rules, known as IR35, are to be scrapped from April 2023, the Treasury has announced.

This will mean that from 6 April 2023, contractors working for an organisation via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and national insurance contributions.

IR35 reforms introduced in the public sector in 2017 and the private sector in 2021 meant that the responsibility for determining a contractor’s worker status shifted to the organisation engaging their services. The government will repeal these reforms.

The Treasury’s Growth Plan document published shortly after the Chancellor delivered his ‘mini-Budget’ this morning revealed that repealing IR35 reforms is among the first steps the government is taking to simplify the tax system.

It says the change will free up time and money for businesses that engage contractors, that could be put towards other priorities.

It will also minimise the risk that genuinely self-employed workers are negatively impacted by off-payroll rules, it claims.

The document says: “The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.”

Penny Simmons, legal director at law firm Pinsent Masons, said: “Businesses will likely welcome the Chancellor’s announcement that the government will repeal changes to the IR35 rules that have created significant compliance and tax risks for businesses.

“However, that doesn’t necessarily mean it’s the end of the IR35 story – the rules will still exist – it’s just that contractors will once again be responsible for compliance and payment of tax. Businesses will remain exposed to tax risks by virtue of other tax rules and the corporate criminal tax offences – if they pay contractors off-payroll when they know that the contractors should be taxed as employees.”

Simmons added that organisations are likely to be frustrated with the news, having invested a significant amount of time and money on compliance.

“It is also unclear what position HMRC will take when dealing with businesses who have inadvertently fallen foul of the rules in this interim period,” Simmons said.

Seb Maley, CEO at Qdos, an organisation that provides tax insurance for freelancer, said “Repealing IR35 reform is a huge victory for contractors. The changes have created havoc for hundreds of thousands of independent workers, along with the businesses that engage them. The fiscal changes announced today are likely to go down as some of the most pro- contracting in memory.

“The government mustn’t waste time, though. The last thing contractors and businesses impacted by IR35 need is uncertainty. A clear and robust roadmap for reversing IR35 reform in both the public and private sectors is needed.”

Alexander Simpson, partner at Evelyn Partners added his comments on the announcement, saying: “While undoubtedly this will be welcomed both by contractors and consultants who operate in this way and by those businesses which make significant use of their services:

“These businesses may be somewhat vexed about the time and cost they have already invested in compliance with such short-lived reforms, and the need to now revisit the impacts of this latest change on their future plans for using contractors’ services versus employees’ services.

“Cases on employment status, which includes the IR 35 rules, have also been part of a stream of recent tax and employment law court cases, as the judiciary has been invited to grapple with the concepts of what constitutes employment as opposed to the provision of services.  These changes do not tackle the complexities that have arisen out of these issues and that position is not changed by these reforms.  These reforms represent a change to who, practically speaking has to make the decisions on employment status for IR 35 purposes on a day-to-day basis, rather than simplifying that process.  We hope the Government will take the opportunity to take that extra step in the near future.”