17 October update
On 17 October, the new Chancellor of The Exchequer, Jeremy Hunt, brought forward a number of measures from the late October Medium-Term Fiscal Plan. These reversed most of the changes that had been announced by his predecessor, Kwasi Kwarteng, on 23 September.
The 2017 public sector and 2021 private sector reforms to the off-payroll working rules were supposed to remove the widespread perceived non-compliance with IR35.
The repeal of the 2017 and 2021 reforms from 6 April 2023 doesn’t abolish IR35 but takes us back to the rules in place from 2000. This puts the onus back on the worker to correctly assess their status and pay the correct amount of tax. It should be noted that for services provided before 6 April 2023, the current rules will still apply, even where the payment is made on or after 6 April 2023.
While the repeal should deliver time and administration savings for engagers, policy costings reveal that the repeal will lead to an annual cost of between £1bn and £2bn. When consulting on extending the public sector reforms to the private sector, much was made by the government that the changes were necessary to close the tax gap and deal with widespread non-compliance. How will HMRC police this in future?
It is incredibly difficult for a worker (or, as currently), an engager to correctly assess employment status. It is also resource intensive for HMRC to challenge these assessments.
ICAEW’s Tax Faculty has repeatedly called for:
- income tax and NIC to be reviewed to reduce the disincentive to classify workers as employees, and to make the expenses regime fit in with new ways of working; and
- the definition of employment status to be simplified.
It most recently made these recommendations for the Future of work review in ICAEW REP 42/22.
The government will conduct a review to identify where it can go further to make the tax system simpler, better for families and more pro-growth. ICAEW reiterates its calls for these employment status issues to form part of that review.
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