Good news for UK tech contractors as government repeals IR35 rules • The Register

The UK government has announced plans to repeal the controversial payroll tax reform, a set of rules that applied to IT contractors moving between companies.

Kwasi Kwarteng, Finance Minister Kwasi Kwarteng, said during his ‘mini-budget’ in the House of Commons today that the non-tariff work reforms have made many companies unnecessarily complicated and expensive.

“As promised by the Prime Minister, we will reverse the 2017 and 2021 reforms. We will continue to monitor compliance closely,” Kwarteng told MPs.

IT contractors may be relieved that the tax code reforms are set to be repealed, but forgive them if they are confused by the turnaround and unnecessary paperwork introduced by the reforms.

After a one-year delay due to the COVID-19 pandemic, new IR35 rules for companies were introduced in April 2022. They placed the responsibility of determining tax status on employers, some unwilling to take the risk, and imposed blanket bans on the use of contractors. The rules were introduced in the public sector in 2017.

Commenting on the move to repeal the legislation, Dave Chaplin, CEO of tax compliance firm IR35 Shield, said contractors would celebrate the government’s announcement.

“These onerous reforms never worked and were flawed from the start. The new version of IR35 has only served to shower the economy with glue and stymie growth. Every time they hire a worker, they have to solve a complex puzzle.”

But Penny Simmons, legal director at law firm Pinsent Masons, said the government’s decision doesn’t necessarily mean the end of the IR35 story.

“The rules will remain in place – only that contractors will once again be responsible for complying with and paying taxes. Businesses remain exposed to tax risks when paying contractors off the payroll, knowing that the contractors should by law be taxed as employees, other tax rules and corporate tax crimes.”

She pointed out that the chancellor had also said the government would monitor compliance.

“The rules were changed because HMRC felt that 90 per cent of contractors were not applying the rules correctly – so if HMRC thinks this is still the case we may see further changes, albeit in different form,” she said.

Over in the US there is two main types of contractors: those falling under 1099 (Form 1099-Misc) and those falling under Form W-2, the latter being similar to IR35 in the UK. However, there are big differences. According to Contractor.com, the news site for contractors and freelancers, the main difference is that “in the UK the contractor is penalized financially if found to be an employee in disguise, while in the US the principal is penalized. ®