The HMRC published a report on December 2022 on the impacts of the off-payroll working rules reform in the private and voluntary sectors.

The UK’s IR35 Off-Payroll Working Rules came into effect on 6 April 2021, covering midsize and large private-sector organisations engaging contractors through their personal service limited company (PSC).

Analysing data from before and after the reform, the HMRC estimates approximately 130,000 workers are likely to have been affected by the April 2021 off-payroll reform.

The report covers the period for the tax year following the reform as well as 18 months prior to the reform (October 2019 to March 2022). According to the report, the reforms are estimated to have generated an additional £1.8 billion in tax revenue in the same period.

This comes from increases in PAYE Income Tax and NICs, and reductions in Corporation Tax, Self Assessment Income Tax, Tax on Dividends and Value Added Tax (VAT) as a result of the reform.

“We estimate client organisations have incurred an overall one-off cost of £90 million to £230 million to implement the reform,” the HMRC noted. “Clients have also spent a further £150 million to £370 million in the first year on operating the rules, which we expect to reduce over time.”

Reacting to the report, Dave Chaplin, CEO and founder of tax compliance firm IR35 Shield said many of the comparative figures in this report are flawed due to the 2020 announcement that the Off-payroll reforms would be delayed by a year.”

“With only three weeks until the expected roll-out date, most firms had already changed their workforces,” Chaplin said. “Therefore, the periods compared in this report of March 2020 to September 2021 do not provide an accurate picture of the before and after scenario.

“Moreover, many of the stats do not seem to tally with the externally commissioned report,” Chaplin said. “The impact statement was miles out in terms of costs.   The original impact statement suggested that the number of workers affected was 170,000. Now, HMRC claims it is 130,000.”

Chaplin added ‘that the report suggests that HMRC is blaming hirers for spending, in its view, too much money on IR35 compliance. This is an appalling attempt by HMRC to spare their own blushes at getting the impact numbers so wildly wrong.  It is high-time HMRC admitted that Off-payroll working is simply not.”

The report also showed how workers are providing their services following the reform. Based on the total number of PSC workers who have changed payrolls, the HMRC estimates the majority have done so by becoming an employee of an organisation that isn’t their own PSC (97%), while a minority have been reported as continuing to work through their PSC having been deemed as employed for tax purposes by their client (3%).

Of those who have become an employee of another organisation, 65% have moved to organisations which are not agencies or umbrella companies (which could include becoming an employee of their client), 20% have moved to an umbrella company and 15% to an agency.

In an audio interview with SIA, APSCo Global Public Policy Director Tania Bowers said the HMRC report suggests a low use of umbrella firms.

APSCo has stated that the Off-Payroll Working Rules are too complex for clients and recruiters to apply and based on ‘poor employment status law’ which ‘needs a fundamental overhaul’.

Recently, on October 2022, Chancellor Jeremy Hunt announced that he would scrap a planned repeal of the IR35 reforms.

In the interview with SIA, APSCo responds to HMRC’s impact report and on the possibility of any further fundamental changes to the reforms.

Click below to listen to the interview with APSCo. For the best experience, please use Chrome or Firefox browsers.