Liz Truss’ new Chancellor Kwasi Kwarteng dropped an IR35 bombshell today, announcing he would reverse off-payroll (IR35) reforms in the Public and Private sectors from April 2023.

The significant, and generally unexpected announcement means it will be up to individual contractors to decide whether they are inside or outside IR35, with no input from their clients.

Kwarteng said reversing the reforms is aimed at taking complexity out of the tax system.

He said: “To achieve a simpler system, I will start by removing unnecessary costs for business. We can also simplify the IR35 rules and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses. 

“So as promised, by the prime minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”

Controversial IR35 reforms were introduced in the Public sector in 2017 and extended to the Private sector in 2021.

Reforms meant the responsibility for judging a contractor’s IR35 status fell to the client, rather than the contractor themselves.

Changes also meant that the contractor would bear financial liability if HMRC decided that a contractor owed unpaid taxes.

This gave clients a strong incentive to make ‘inside IR35’ judgements for their contractors, which ultimately reduced the contractor’s take home pay.

The rules were criticised for being complicated to administer and for unfairly penalising contractors in the flexible labour market.

In August, the new Prime Minister Liz Truss said that she would look to review IR35 reforms, but some industry analysts thought the change in Government leadership would not bring about significant movement on the issue.

Other plans in the Chancellor’s mini-budget include:

• Reversing the 10% increase in National Insurance Contributions
• Cutting the basic rate of income tax to 19% one year early
• Scrapping the 45% top rate of income tax altogether

For more information about the changes to IR35 and how they affect your contracting business, speak to a member of the team today. Call: 01625 544 460