The IR35 reforms (off payroll rules) are set to be repealed in April 2023. We asked IR35 expert Dave Chaplin how the legislative process works, and what contractors and clients should do in advance.
[Oct 17th – Chancellor Jeremy Hunt has cancelled the Off Payroll repeal described below. So nothing changes!]
Are the Off-Payroll reforms definitely going to be repealed in April 2023?
Probably. Holding back the self-employed impedes growth. The democratically elected Ministers in Government finally realised that the Off-payroll working rules (“OPW”) (Chapter 10 ITEPA 2003) had not quite worked according to plan and that too many genuinely self-employed workers had been unfairly treated.
Whilst the media are playing games trying to create headlines and oust yet another leader, the reality is that the Truss / Kwarteng duo are likely to be in power long enough to get a Finance Bill through the House of Commons before 6th April 2023.
The question then becomes what level of interference and political horseplay might occur as the Bill makes its way through. Will it get to the other side with the repeal intact?
My view is, again, probably.
How does the Finance Bill process work, and at what stage will the repeal become law?
The process for the Budget and Finance Bill is detailed in Erskine May – which is the Bible of parliamentary procedure.
The draft is placed before Parliament in the House of Commons at 1st Reading, followed by 2nd Reading, Committee Stage, Report Stage, and 3rd Reading.
Once it passes the 3rd Reading, it goes to the House of Lords, who waves it through fairly quickly, and it then reaches Royal Assent, which means it is the law.
Think of taking a copy of the Finance Act in MS Word, making changes using Track Changes, and creating another document that lists all those changes – that’s what a Finance Bill looks like. As it progresses, there are suggested amendments, some of which may get enough support to get voted on.
There are key things to look out for at specific stages as the Bill progress through the House, which give clues as to whether the repeal will happen, whether it will happen with slight changes, and whether changes may be made to the original Intermediaries Legislation (Chapter 8 of ITEPA 2003).
Typically, what sort of timescales are we talking about here?
The process typically takes about three months (see the example for FB 2021). It will start in November 2022, and we will be able to detect any signs of trouble in December 2022.
By February 2023, we should know.
Given nothing is definite until it happens, what should contractors do in advance of April 2023?
At IR35 Shield, we have identified 256 different permutations that contractors and firms may need to deal with as we head towards April 2023. Each contractor should work out their position and then go from there.
It’s important to understand that if the repeal happens, this is not a free-for-all for individuals to evade tax wilfully. HMRC have all sorts of new tools in the box they didn’t have in the past to cater for these people – and I hope they use them – because it’s that group that ruined it for the professional contracting community.
The first step for all contractors is to ensure they are educated on IR35 matters. They are the ones who may be deciding from April 2023, and they are the ones who will be holding the tax liability.
What should end-clients do in advance?
It depends. We are in the 256 permutations zone again. If a firm engaged with the OPW regime, then the path should be a bit smoother, although there are some howlers to watch out for when transitioning from Chapter 10 back to Chapter 8.
Unfortunately, it’s not simple. One example: Suppose a firm hired an ex-contractor as a permanent employee. They can’t just fire and rehire as a contractor without considerable thought – remember, the original IR35 was brought in to combat this exact “Friday-to-Monday” scenario.
The reality is that unpicking is going to require careful consideration.
Assuming the legislation passes, can HMRC do anything to make the future operation of IR35 more ‘challenging’?
Certain aspects of the original Intermediaries Legislation could be altered to make it easier for HMRC, but that would require the statute to be changed. The clues on that one will be found at 1st Reading.
Statutory changes aside, there are other things HMRC could do, without statute, to help ensure contractors pay the correct amount of tax – by that, I mean, if the contract is “deemed employment” (Inside IR35), then it is processed as such.
The reality is that contractors should do what they should have been doing — getting an impartial assessment of their contract, and paying taxes accordingly.
About the author
Dave Chaplin is CEO of tax compliance firm IR35 Shield and has been immersed in IR35 matters for so long, some people refer to him as ‘Mr IR35’. He can usually be found roaming around IR35 tax tribunals or can be contacted here.