Newly appointed Chancellor Jeremy Hunt today announced that he would scrap a planned repeal of the IR35 reforms (Off-Payroll) which came into effect in April 2021.

The announcement comes less than a month after it was announced in the Mini Budget 2022 that the reforms would be repealed.

Hunt was appointed Chancellor of the Exchequer on 14 October 2022, following the sacking of previous Chancellor Kwasi Kwarteng.

Kwarteng had delivered the Mini Budget speech, titled ‘The Growth Plan 2022 speech’ on 23 September following Prime Minister Liz Truss’s promise to review IR35 legislation.

Kwarteng said at the time, “In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses. So, as promised by My RHF the Prime Minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”

However, in Hunt’s ‘Medium-Term Fiscal Plan’ measures published today, the chancellor announced a reversal of almost all of the tax measures set out in the Growth Plan.

The announcement stated that the plan to repeal the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023 will no longer be going ahead.

“The reforms will now remain in place. This will cut the cost of the government’s Growth Plan by around £2 billion a year,” the government stated.

Other changes include a reversal on cutting the basic rate of income tax to 19% from April 2023, as well as a reversal on cutting dividends tax by 1.25% from April 2023. The government is also not proceeding with its plan to introduce a new VAT-free shopping scheme for non-UK visitors to the UK and will not be freezing alcohol duty rates from 1 February 2023 for a year.

Altogether, the reversals to the tax measures announced in the Growth Plan are estimated to be worth approximately £32 billion a year.

“Following conversations with the prime minister, the chancellor has taken these decisions to ensure the UK’s economic stability and to provide confidence in the government’s commitment to fiscal discipline,” the government stated. “The chancellor made clear in his statement that the UK’s public finances must be on a sustainable path into the medium term.

The U-turn on the planned repeals has been criticised.

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.

“Repealing Off-Payroll would have returned an essential level of certainty to contract transactions in the market economy, leading to economic growth. Instead, Off-payroll will continue to cause significant harm to the self-employed, major businesses, the government, and the economy.

“While 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,” Chaplin continued. “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.”

 Crawford Temple, CEO of Professional Passport, added, “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 (Off-Payroll Working) 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.”

Julia Kermode, founder of IWork, said, “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.

Seb Maley, CEO of IR35 specialist Qdos, added, “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,” Maley said. “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 Freelancer and Contractor Services Association (FCSA) also stated that it was disappointed that the rollback of the reforms will not proceed.

Chris Bryce, FCSA’s Chief Executive, said, “The scrapping of the rollback of the 2017 and 2021 IR35 rules is disappointing. 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, the chancellor also recognised that re-introducing the 10% rise in National Insurance Contributions dropped by his predecessor, would have been a step too far and, since that tax would have disproportionately affected those working via umbrella companies, I’m pleased that it currently remains off Jeremy Hunt’s agenda.”

Fred Dures, founder of PayePass, said, “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.”

Neil Carberry, REC CEO said, "Today’s announcements will hopefully calm the situation and allow space for the key debate, how to help businesses generate the sustainable growth that will keep public services funded and taxes low without overstretching the public finances. The most important part of generating growth is the hard work that needs to be done on issues like skills, getting more people into the labour market, and the tax system. There are no quick fixes. As we said last month, it is not enough to tear things down, we need to take time to build. Just as scrapping changes on IR35 did not solve the problem of a complex and poorly enforced system, keeping them will not make these issues go away either. We have had too many employment-related policy decisions drafted from the headline down, it is time to start working from the workplace up, in partnership with employers and employees.

SIA’s FAQ’s on IR35 Off-Payroll Working Rules are available to members here.