The UK Government’s Growth Plan: IR35 legislation repeal

As advised in our earlier blog regarding the UK Government’s Growth Plan the recent IR35 legislation will be repealed.  The history of recent IR35 legislation is as follows:-

• In 2016 the government announced changes to the public sector from April 2017 which shifted the status determination of whether a contract was inside or outside IR35 from the personal service company (PSC’s) to the end user.
• In April 2021 the new legislation was rolled out to the private sector for medium and large companies (end user) engaging with PSC’s.
• The new legislation impacted the status quo with many medium and large companies implementing significant changes to mitigate their IR35 risk as the end user. There were various responses by end users to manage this risk and one notable response was a blanket approach with no individual assessment criteria in place.

The UK Government is now “trying to simplify tax legislation” and has therefore decided to repeal the above IR35 legislation.  As a result, from April 2023, workers providing services via an intermediary will once again be responsible for determining their employment status and paying the correct amount of tax and National Insurance contributions under the IR35 rules.

So what does this mean?

At the moment, it is difficult to predict how medium and large companies will respond to this given the effort, time and cost they have endured to firstly understand the legislation and secondly mitigate their risk.  However, they are expected to respond positively.

If the response is to revert back to pre 2017/2021 times, we could see an upsurge in contracts falling outside IR35 after April 2023.

If this does happen, we would recommend seeking advice from your accountant before accepting a contract as there will be tax issues to consider.

Key tax considerations

Company dissolved 

If a previous limited company has been closed, there are anti-tax avoidance rules in place to stop another company being set up to carry on a similar trade within two years of the final capital distribution from the old company.

Any distribution in these instances would not be treated as capital and the full distribution would be subject to income tax.  This could have a significant tax impact.

IR35 2000 

Although the 2017/2021 reforms will be repealed from April 2023, the 2000 legislation has not been abolished meaning the status determination will rest with the PSC.

Note that the planned repeal of the IR35 legislation outlined above was cancelled on 17 October 2022.  Please see our blog of 17 October 2022 for a summary of the current position:-