Loathed IR35 reforms return in latest tax U-turn

Grant Prior 1 month ago
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Chancellor Jeremy Hunt has reversed plans to scrap controversial reforms to the tax status of self-employed workers.

The volte face came as Hunt ripped-up virtually all of the tax measures announced in previous chancellor Kwasi Kwarteng’s “Growth Plan” last month.

Changes to the IR35 system were introduced in April 2021 making contractors responsible for determining the employment status of freelance workers.

The move was roundly criticised by former self-employed workers who saw their tax bills rise and contractors who faced bigger bills from direct employment.

Kwarteng said from April 2023 the system would revert back to its original rules with freelance workers assessing their own tax.

But that has now been canned by Hunt who said: “We will no longer be proceeding with the reversal of off-payroll working reforms.”

Hunt added that he was “deeply committed” to cutting tax and letting people keep more of the money they earn before confirming in his “Un-Budget” that the following policies will no longer go-ahead:

    • Cutting the basic rate of income tax to 19% from April 2023. While the government aims to proceed with the cut in due course, this will only take place when economic conditions allow for it and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely.
    • Cutting dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase, which took effect in April 2022, will now remain in place.
    • Repealing the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023. The reforms will now remain in place.
    • Introducing a new VAT-free shopping scheme for non-UK visitors to Great Britain.
    • Freezing alcohol duty rates from 1 February 2023 for a year.

Infrastructure investment and planning rule changes announced in the Growth Plan are currently still going ahead.

Ian Anfield, managing director of payroll provider Hudson Contract said: “Once the markets had reacted so badly to the mini-budget and the government started back pedalling, the changes to IR35 were always in peril.

“Thousands of professional consultants working in and around construction such as surveyors, planners and CAD technicians will be disappointed however, for the vast majority of construction firms, and to most of the two million plus people doing work for them, this will not mean too much.

“Despite lots of confusion around IR35, firms with turnovers less than £10.2m are not caught, and the vast majority of self-employed trade operatives are sole traders and therefore not caught either.

“The good news for construction is that the stamp duty reforms set to help the housing sector were already passing through legislation and are set to stay.

“And still desperately clinging to the growth agenda, the government say they will press ahead with planning reforms and the acceleration of infrastructure projects.”

 

 

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