Government’s mini-budget surprises with huge amendments to IR35 legislation

The Growth Plan

As you will undoubtedly be aware, the Chancellor, Kwasi Kwarteng, has this morning delivered his Growth Plan. The full statement, and supporting documents can be found here, but some noteworthy announcements are:

IR35 Repeal
For many of our clients, the IR35 announcement in today’s ‘mini-budget’ will not only be a surprise but, also the headline announcement. It was announced that the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6th April 2023. From this date, contractors providing their services via an intermediary (such as a PSC) will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions (rather than the current system for the Public Sector and medium and large businesses that, subject to a convoluted and complicated Status Determination Statement (SDS) system, shifts the liability to the end-client and then down the chain to the Fee Payer). To be clear, despite what we have seen in some social media posts, this change does not repeal IR35 in its entirety. IR35 will still exist post April 2023 and HMRC will still be conducting enquiries but, repealing the 2017 & 2021 changes is still a huge announcement for our clients and, potentially, important news for those that want to engage with contractors and for contractors that have, over recent years, seen their ability to trade lessened.

However, all we currently have is the following statement:

• The 2017 and 2021 reforms to the offpayroll working rules (also known as IR35) will be repealed from 6 April 2023.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.

While this seems straightforward, this is not a government that is averse to U-turns (in fact Liz Truss made a few during her campaign to be PM) and, as this is not a full budget, the process for when we will see actual legislation is not defined. However, with those cautionary words in mind, it certainly does seem like important changes are on the way and something that our clients should be ready for. Furthermore, with numerous Status Determination Statements (produced under the soon to be repealed rules) in play, it remains to be seen how easily these can be changed and how many contractors are prepared to engage as contractors with an existing SDS stating that they are caught by IR35. In short, this is potentially huge news but as always, the devil is in the detail. As we get more detail, we will begin to prepare advice for clients and without further delay we will begin to prepare our service offerings so that our clients are able to maximise the potential of this announcement.

National Insurance & the Health & Social Care Levy
As of July 2022, the government had already increased the National Insurance contributions (NICs) Primary Threshold and Lower Profits Limit to align the point at which people start to pay NICs with income tax, at £12,570.

The government has today announced that they are further reducing NICs (Class 1 and Class 4 NICs) by 1.25 percentage points from November 2022 and cancelling the introduction of the Health and Social Care Levy as a separate tax from April 2023.

Income Tax
The government will bring forward the 1 percentage point cut to the basic rate of income tax to April 2023, 12 months earlier than planned.

The additional 45% rate of income tax will also be removed from April 2023.

Corporation Tax
The previously announced planned increase in the UK Corporation Tax rate from 19% to 25% that was due to take effect in April 2023 will not go ahead. Businesses will continue to pay 19% on their taxable profits.

EU Legislation
Finally, the government has outlined a plan for repealing EU law, particularly highlighting the need in the financial services sector, and replacing it with rules tailor made for the UK. In addition to this, the announcement outlined the need to scrap EU rules from Solvency II to free up billions of pounds for investment. Some of our readers may be aware that the Retained EU Law (Revocation and Reform) Bill was published yesterday, and this had been brought forward than initially outlined. Retained EU law is a category of domestic legislation that was created towards the end of the Brexit period and consists of legislation that has been derived from the EU and preserved in our framework. Importantly, the retained laws were never intended to be a long-term solution and as such, the Bill will abolish this special status and allow Parliament to amend, repeal and replace retained EU law more easily. Further details on this point can be found here.

If you need further advice, please get in touch with your usual contact on the Chartergates Team.