Too bad, contractors: UK government reverses decision to axe IR35 tax reform
- Reference: 1666013411
- News link: https://www.theregister.co.uk/2022/10/17/uk_government_reverses_ir35_decision/
- Source link:
Among a package of tax cuts, the move to cancel IR35 tax reforms — controversial measures which mean fewer contractors can claim work outside employee status — was announced on September 23.
But today, Jeremy Hunt — who replaced Kwasi Kwarteng as chancellor of the exchequer on Friday — announced he planned to reverse most of the tax cuts introduced in the so-called mini-budget, a humiliating U-turn for the government. His plans include reversing the repeal of IR35.
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"A central responsibility for any government is to do what is necessary for economic stability," said Hunt, following the financial markets' negative reaction to the "mini-budget".
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Matt Fryer, MD of accounting firm Brookson Group, said: "Uncertainty isn't helpful for hirers or contractors, particularly in today's economic climate. At least retaining the current off payroll working rules takes us back to the position we were in a few weeks ago and gives us a bit of certainty. However, it is clear now that the government acknowledges the current rules aren't working as expected.
"If the rules stay in place exactly as they are, more needs to be done by HMRC in terms of education and support for the entire flexible labour market," he said.
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IR35 reforms were introduced for businesses in April 2022 following a year's delay caused by the COVID-19 pandemic. They put the onus on determining tax status on employers, some of which were unwilling to accept the risk and put blanket bans on the use of contractors. The rules were introduced in the public sector in 2017.
[6]Good news for UK tech contractors as govt repeals IR35 tax rules
[7]Lloyd's of London cuts off network after dodgy activity detected
[8]Bank of England puts cloud analytics on todo list after seeing off market collapse
[9]Brexit dividend? 'Newly independent' UK will be world's 'data hub', claims digital minister
IR35 reforms had proved challenging for the government's own departments, which owed, or expected to owe, the UK tax collector £263 million (c $298 million) in 2020–21 due to incorrect administration of the rules, [10]a report from Parliamentary spending watchdog the Public Accounts Committee said .
What is IR35?
IR35 is a reform unveiled in 1999 by the UK tax authorities. The latest regulation change – which came into force in April 2021 – forced medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.
Contractors found to be within the scope of the legislation – i.e. inside IR35 – will have to pay more tax than they might expect.
The reforms are part of the government's crackdown on so-called disguised employment, where workers behave as employees but are able to slash their tax bills by billing for their services through Personal Service Companies (PSCs), which are taxed at lower corporate rates.
The measures first came into effect in the UK public sector in 2017. The British government hoped the reforms would recoup £440 million (c $486 million) by bringing 20,000 contractors in line.
HMRC reckons that only one in 10 contractors in the private sector who should be paying tax under the current rules are doing so correctly. It estimates the reforms will recoup £1.2 billion (c $1.33 billion) a year by 2023. Both public and private sector reforms had been set to be repealed before today's U-turn. Now both are back on the books.
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[1] https://www.theregister.com/2022/09/23/uk_government_to_repeal_ir35/
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2Y018GadUjYSNl@NOT8LwLgAAAJY&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
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[6] https://www.theregister.com/2022/09/23/uk_government_to_repeal_ir35/
[7] https://www.theregister.com/2022/10/07/lloyds_london_security_incident/
[8] https://www.theregister.com/2022/10/03/bank_of_england_dta_analytics/
[9] https://www.theregister.com/2022/10/06/new_dcms_head_newly_independent/
[10] https://www.theregister.com/2022/05/26/mps_slam_ir35_government_rollout/
[11] https://whitepapers.theregister.com/
Critical correction
" His plans include reversing the repeal of IR35 "
They weren't going to repeal IR35, as disguised employment would still have been taxable as direct employment. They were just going to transfer the burden of status determination from the service user to the service provider ( a very sensible move that would have rectified a gross injustice and made contracting economically viable again). So we're back in the position of a stalled contracting market in the name of growth .
Oh brave new world that has such dumbos in it! But I suppose in comparison with wrecking the entire economy in three weeks flat that might seem somewhat trivial.
Where are the Tories ?
Much like their Brexiteer cousins, they have evaporated.
Another correction (yet again the same misunderstanding)
" They put the onus on determining tax status on employers "
That statement begs the question and is therefore utterly invalid (even if it's what HMRC have been trying to foist on us). "Employer" presupposes an employment relationship, which is not the case for anyone operating as a contractor outside IR35. In that case the contractor is a service provider not an employee. Until almost everyone stops repeating this fundamental error we'll never get any sense talked about IR35.
Re: Another correction (yet again the same misunderstanding)
If I employ a hammer for a task that doesn't make the hammer my employee.
This should make people happy
Unfortunately I had the bad feeling Truss would back down and of course with U-turns and now pretty much a 'back to normal' we are looking at more of the same from those who brought us such a wonderful situation that we are in.
Agree with her approach or not at lease Truss originally was willing to try but for whatever reason she backed down at all has trashed all hope and now we just wait to see what next useless sockpuppet might take over. A general election cant solve this either, just another useless sockpuppet in the various parties available.
Re: This should make people happy
"she backed down"
Because the real policy makers are the "markets". Because the "markets" disagreed with her unconventional choices, government bonds and the £ devalued. This morning, even before Hunt made his announcements, both had recovered because the "market" expected more conventional policies to be applied. Note. Expected. The markets demonstrated that if thew government follows the market approved policies, then the £ and bond values will be safer.
Nice economy you got there mate. Be a shame if something happened to it.
Re: This should make people happy
"The markets" in this case largely being pension funds and other large institutions that are absolutely not concerned with a healthy British economy so much as their own profits. After Bankers became the enemy in 2008, it seems we're now allowing them to run our country.
I note that there have been a bunch of analysis in the wake of this U-Turn that suggest (as per Goldman Sachs) that the abandonment of tax reform will significantly worsen our economy next year. Great.
Meanwhile, Labour policies are actually lower tax than Conservative at current count - make of that what you will.
Re: This should make people happy
@Andy 73
"I note that there have been a bunch of analysis in the wake of this U-Turn that suggest (as per Goldman Sachs) that the abandonment of tax reform will significantly worsen our economy next year. Great."
It is interesting how bad things have got that policies which are deemed better for the country would be the spark to expose some of the problems that have been created.
Re: This should make people happy
Plenty more Tufton Street influenced meat-puppets ready in the wings.
Re: This should make people happy
"At lease Truss originally was willing to try ".
I see. Despite having no clue or competence at macroeconomics or running a country least Dizzy Lizzy was willing to give it a try. What next? Would you use that bollocks as an excuse if our cheesmonger in chief was designing a nuclear reactor or doing a bit of brain surgery?
Strong & Stable.
Ha ha.
Re: Strong & Stable.
If you thought that was funny, try "Conservative". They keep using this word, I do not think it means what they think it means.
Re: and Unionist
Sorry... who are they uniting again?
Icon because it is the closest to J R-M that I can find.
Starting with a lie
Not a great way to start, with a lie, Mr Hunt. Claiming these changes will bring in extra money when the truth is you're just getting back the money you gave away a few weeks ago.
If I lose a tenner and then find it again I'm not any richer than I was to begin with.
So are you a liar or unable to count Mr Hunt?
Screw them
Honestly, this government. Announce something then take it away.....I'd rather you hadn't even bothered.
Will someone just get behind some proper IR35 reform and clear this mess up for proper independent consultants who work on multiple projects, please?