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Read more articles in: Amanda Hyam, Blog, Employment Law

Repeal of IR35 measures welcomed by businesses

Chancellor Kwasi Kwarteng has said that IR35, or off-payroll working rules, which affect self-employed individuals operating through a company, will be repealed in 2023.

The move has been welcomed by the Federation of Small Businesses which described the rules as ‘poorly thought-through, unnecessary and burdensome regulations’.

Under recent reforms, IR35 effectively stopped freelancers acting as employees while working through an intermediary, which were quite often their own private companies.

Many businesses claimed it made it more difficult and expensive for them to secure freelance work.

When was IR35 introduced?

IR35 came into effect for public sector workers in April 2000. It was an attempt by HMRC to determine whether a non-payroll worker was really a contractor or a disguised employee.

It was designed to ensure that an individual who works like an employee, but through their own limited company, pays broadly the same income tax and national insurance contributions as any other employee.

In 2017, HMRC transferred responsibility for assessing whether someone was a disguised employee in the public sector from the individual to the organisation and the private sector followed in 2021.

Number of contractors reduced

This rule change resulted in many businesses reducing the use of contractors because they did not want to have to determine their status and be responsible for deducting tax and national insurance contributions on behalf of HMRC.

The legislation also created problems for the contractors as it restricted their ability to work as such.

The repeal of these rules means that the contractor will once again be responsible for ensuring they pay the correct amount of tax and NICs for the services provided.

Chancellor ‘has done the right thing’

Martin McTague, National Chair of the Federation of Small Businesses, said: “The Chancellor has done the right thing in getting rid of the 2017 and 2021 rules brought in around IR35.

“Scrapping these poorly thought-through, unnecessary and burdensome regulations at a time when we need more people to choose self-employment and start-up in business, is welcome. These restricted small businesses and self-employed people’s ability to do their work and contribute to the economy.”

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