The Death of IR35 and Off-Payroll Engagements?

The announcement in the mini budget that the 2017 and 2021 amendments to the taxation of Off-payroll arrangements were to be withdrawn in April 2023 came as a total shock many.

By Chris Davies

So, is IR35 dead and what does it mean to existing and potential contractors?

No IR35 is certainly not dead, we simply revert to the position existing before 2017 where contractors were responsible for deciding their own employment status for the purposes of determining whether they were inside or outside of IR35.

As a result of the 2017 and 2021 changes, and the blanket status decisions taken by larger clients, many contractors were forced to take contracts within IR35, take employment through umbrella companies or work direct for the end client.

As a result of last week’s announcement, it is more than likely that we will see a resurgence in contractor companies. For those who can demonstrate that their engagement falls outside IR35 that will mean that they will see a much reduced tax liability as they will be able to deduct allowable business expenses, potentially share income with their spouse, and eliminate National Insurance Contributions.

Many of you will be aware of the Targeted Anti Avoidance Rules (TAAR) that were introduced to prevent the practice of “phoenixing” companies i.e., closing one company in a tax efficient manner, only to set up another shortly after. Broadly the TAAR rules seek to prevent individuals from closing one company and being involved in the ownership or running of another company within a 2-year period.

We have seen some commentators suggest that this will prevent contactors who closed their companies as a result of the Off-payroll rules from being able to open a new company for 2 years. We disagree.

There are 4 tenets to the TAAR rules the last of which says that the TAAR will only apply where:

• it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax.

We would strongly argue that if a contractor closed his company because he was forced into an umbrella arrangement or permanent employment because he was unable to find suitable engagements as a result of the Off-payroll rules that it was not done for tax avoidance purposes. Although we do not think that same argument would necessarily be sustainable if a decision to close a company was made after the mini budget announcement, if the intention was to restart contracting shortly after.

It is also important to realise that these are only proposals at the moment and must be passed by Government before they become law. The expected costs to the Treasury of this measure are £6bn over 4 years so it’s definitely not a certainty that the proposals will go through.

Finally, without wishing to get political, I do find it staggering that after spending so much public money establishing new systems, forcing extra compliance costs onto agencies and larger employers, and decimating the contracting industry, that a later Government can simply bin it all at a stroke.

Need IR35 advice?

For more than 30 years we have helped thousands of contractor clients and if you would like to discuss your future contracting plans or are concerned about your IR35 status please do get in touch with one of our IR35 specialists located at each of our four offices.