The Government's 23 September announcement to roll back the recent IR35 reforms is good news for employers who engage individuals via personal service companies to provide consultancy services. Employers may wish to consider whether they would like to revise their existing engagement models, and if so, how.
The Government announced in the 2022 Autumn Statement on Friday 23 September that it will repeal the 2017 (public sector) and 2021 (medium and large sized private sector employer) reforms to the IR35 off-payroll working rules from 6 April 2023. From that date, individuals who provide their services via an intermediary will once again be responsible for determining their employment status under the old IR35 rules and paying the appropriate amount of tax and National Insurance contributions (NICs).
Employers will welcome this development because it:
- shifts the obligation to assess status and potential liability to account for employment income tax and NICs back to the individual's intermediary;
- removes the administrative burden of the current rules which require employers to assess employment status, provide status determination statements, pay employment income tax and NICs for individuals with deemed employment status and deal with any challenges to status determinations; and
- removes the risk of incurring tax liabilities if status has incorrectly been assessed as self-employed (or "outside IR35").
It is worth noting, however, that many employers spent considerable time and effort revising their arrangements to take account of the impact of the current IR35 regime, for example, by re-negotiating consultancy agreements, engaging individuals via recruitment agencies, or simply hiring the individuals as direct employees. Employers may therefore wish to plan ahead for next April and take a considered approach to revising their current engagement models. In this regard it's worth bearing in mind that the Government has said that it will keep IR35 compliance closely under review, which suggests that there may be further tweaks to the rules ahead.
If you would like more information on how best to manage IR35 issues in your business, please get in touch with your usual Mishcon de Reya contact or with a member of the Employment team.