The Chancellor of the Exchequer, Jeremy Hunt, has chosen to scrap the plans to repeal the Off-payroll IR35 Reforms, which Kwasi Kwarteng previously announced in his mini-budget on 23 September 2022.
The Growth Plan had set out steps to take the complexity out of the tax system and identified the necessity of repealing the 2017 and 2021 off-payroll working rules (IR35 Reforms).
The Conservatives Growth plan indicated that repeal would "free up time and money for businesses that engage contractors, that could be put towards other priorities." And that it "also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules."
Hunt, who took up the role of chancellor on Friday, said this morning that the IR35 reforms would be going ahead. “The government has today decided to make further changes to the mini-Budget,” the Chancellor said. “We will reverse almost all the tax measures announced in the growth plan three weeks ago that have not started the Parliamentary process.
“We will no longer be proceeding with the reversal of off-payroll working reforms [IR35] introduced in 2017 and 2021.”
In moves announced via a pre-recorded video instead of parliament in a bid to calm markets, the newly installed chancellor announced that most of its financial plans had been dropped. This includes the planned lowering of the basic rate of income tax from 20 to 19 per cent, set for introduction in April. Hunt said this will now not be introduced until “economic conditions allow”.
It had already been announced that planned increases to the rate of corporation tax and abolishing the highest rate of income tax would be dropped.
Hunt said today that a Treasury-led review will be carried out into the government’s support package for household and business energy bills beyond April next year.
Reforms to IR35, introduced in April 2021, require operatives routinely working with the same contractors to be counted as PAYE staff, or face action from HMRC.
The changes were introduced as a crackdown on tax avoidance, but critics claimed they would force many out of self-employment and reduce incomes.
They were also linked to a Whitehall drive to increase the number of direct employees in the construction sector, driven by the government and the Construction Leadership Council.
However, they were criticised for hitting the income of the self-employed and adding to the burden on employers.
Reversing the reform was one of the leadership campaign promises made by prime minister Liz Truss. The 2021 reforms will now remain in place.
Hunt said the government changed its tax plans “to ensure the UK's economic stability and to provide confidence in the government's commitment to fiscal discipline”.
He added: “Instability affects the prices of things in shops, the cost of mortgages and the values of pensions. There will be more difficult decisions, I’m afraid, on both tax and spending as we deliver our commitment to get debt falling as a share of the economy over the medium term.”
Departmental spending will be cut, he added, in order to “protect the most vulnerable” and help the government deliver “our mission to go for growth”.
Andy Chamberlain, director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE), slammed the “spineless decision”.
“Today’s announcement will be a huge blow to thousands of self-employed contractors and the businesses they work with,” he said. “The reforms to IR35 have created a nightmare for businesses seeking to engage talent on a flexible basis, while simultaneously forcing individuals out of business altogether.”
He added: “Businesses that were looking forward to an era of less complexity and less cost will have had those hopes dashed today. Our fear is this decision will lead to yet more work being offshored to other territories and more people being forced to work through unregulated umbrella companies. The supposedly pro-business Conservative government has sent out a clear message today – it does not support people who work for themselves.”
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