New chancellor reverses repeal to IR35 reforms

Chancellor Jeremy Hunt has announced he is reversing almost all tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation.

Revealing the latest set of U-turns in a video statement, a reversal of plans to repeal the IR35 Off-Payroll Working Rules reforms of 2017 and 2021 is among the victims of this announcement.

Hunt said he announced these measures this morning [17 October 2022] to “provide confidence and stability”. However, Hunt said he will provide fuller details in the Commons later.

The cut to National Insurance will remain, as well as cuts to stamp duty. But almost everything else is gone, he revealed.

“We will no longer be proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms, the new VAT-free shopping scheme for non-UK visitors or the freeze on alcohol duty rates,” he said.

Disappointment, shock and even anger were evident in early reactions from the contractor and umbrella industry.

“I’m lost for words,” said Seb Maley, CEO of IR35 insurance and consultancy specialist Qdos. “While U-turning on some tax cuts made sense, cancelling the repeal of IR35 reform is the wrong decision at the wrong time. It’s a knee-jerk reaction from the government and, in my opinion, won’t benefit the economy.

“IR35 reform damages the flexibility of the UK labour market, which is key to economic growth. Many contractors left the sector after risk-averse businesses stopped engaging them. Repealing reform would have opened the floodgates – a catalyst for the recovery of this sector.
“With IR35 reform now remaining in play, businesses must continue prioritising compliance. The legislation is complex and navigating it can be a challenge, but with the right approach can, in fact, be managed.”

The Freelancer and Contractor Services Association (FCSA) expressed disappointment that the proposed rollback of off-payroll working rules has been scrapped by the Chancellor.

FCSA CEO Chris Bryce said: “This will add to the confusion in the contractor marketplace and will also do nothing to improve the agility and flexibility contractors offer UK plc.”

However, Bryce went on to say: “The government realistically had little choice but to dance the Hokey Cokey on Kwasi Kwarteng’s so-called mini-budget. Markets and businesses react badly to uncertainty and steeper borrowing, and I hope that a steadier hand on the tiller will give both the markets and our industry some stability in the medium term.”

Commenting on the Chancellor’s move to revoke the repeal of the off-payroll rules that were introduced in 2017 and 2021 to the public and private sectors, Dave Chaplin, CEO of tax compliance firm IR35 Shield said: “The government’s initial commitment to repealing the Off-Payroll rules was a sensible initiative and would have been a significant step forward for the UK's army of self-employed people who are critical to the government’s pro-growth agenda.

“Whilst we agree that tax avoidance measures are sensible, the off-payroll rules over-extended, causing genuinely self-employed contractors to lose their rights to being their own boss.

“The Conservatives’ U-turn on the repeal has thrown around half of the genuinely self-employed contractors under the bus, and likely kissed goodbye to their success at the next General Election.”

Julia Kermode, founder of IWORK, commented: “Rowing back on the IR35 reform repeal deals a major blow to freelancers and contractors. Given IR35 reform makes working self-employed more difficult, it contradicts the government’s latest plans to help those on benefits and at college work for themselves. And while backtracking on the promise to scrap the 45p income tax rate was the right thing to do, basic rate income taxpayers – who need help more than ever – have had their hopes dashed once more.

“With yet another fiscal statement pencilled in for 31 October, when will it end? What we all desperately need – businesses, workers and even MPs – is stability, clarity and a robust plan of action so we can all get on with things.”

Fred Dures, founder of PayePass, commented: “Scrapping the IR35 reform repeal shows massive oversight. Panicking and backtracking on the promise to abolish these changes won’t have the desired effect. In fact, U-turning on this pledge is likely to lead to more problems.

“IR35 reform has caused unnecessary complexity, leading to major issues for contractors, recruitment agencies and the businesses engaging these workers. It has seen a tidal wave of tax avoidance schemes entering the market – ones that lure in unsuspecting contractors and pose a huge threat to the entire supply chain. 
“By keeping IR35 reform in place and not delivering on promises to regulate the umbrella industry, this see-sawing government is failing the flexible workforce.”
Crawford Temple, CEO of Professional Passport, independent assessor of payment intermediary compliance, summarised the situation for many by saying: “The off-payroll rules that were rolled out to the public and private sectors in 2017 and 2021 were ill-thought-through and damaging for the UK economy. It would appear that the government also recognises this by announcing the repeal. However, that repeal is now not proceeding. The OPW rules were built on already fundamentally flawed IR35 legislation and so we now call for a considered approach and a proper review that Liz Truss promised as part of her ministerial campaign.”

Hunt is scheduled to address the Commons at 3.30pm today.

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