IR35 Change Is Coming: What Does It Mean For Employers And The Interim Market? 

On 17th October, the new chancellor Jeremy Hunt announced that the government will not be changing the IR35 rules after all. 

We know this U-turn, coming less than a month after the original announcement by Kwasi Kwarteng, will be disappointing to many contractors and clients. We will continue to support our candidates and our clients with IR35 status determinations. To discuss this further, don’t hesitate to get in touch. 

From national insurance cuts to energy bill reductions and stamp duty changes, Chancellor Kwasi Kwarteng’s recent mini budget outlined a variety of measures as part of the government’s new ‘growth agenda’. Perhaps the most surprising announcement of all, however, was the U-turn on the off-payroll working rules (IR35) introduced in 2017 and 2021. While welcome news, there understandably remains some confusion about exactly what the changes mean for interim professionals – and what will happen between now and April 2023 when the new ruling is set to take effect. 

A Brief History Of IR35 Reform

‘IR35’ is a catch-all word that refers to two pieces of ‘deemed employment’ legislation. The off-payroll working rules (Chapter 10 of the Income Earnings and Pensions Act) were introduced into the public sector in 2017 and extended to the private sector in 2021 for medium and large companies. Under the original IR35 rules, contractors were responsible for assessing their own status and liable for the associated tax. Under these rules, hiring firms took on the responsibility for assessments and tax liability. This meant that companies could either:

  • Choose not to engage contractors at all.
  • Engage contractors via third party ‘umbrella’ companies who were responsible for the determination.
  • Label all contractors as ‘inside IR35’ out of an abundance of caution.
  • Work to determine a potential employee’s status either via the government CEST tool or by using a third-party provider’s tool.

The challenges that followed IR35 reform saw some contractors exit the UK talent pool altogether, whilst some requested higher day rates to make up for remuneration lost by working ‘inside IR35’. The reform also caused major challenges for companies who struggled to make accurate determinations – including the Home Office and Department of Work and Pensions!

Impact Of The New IR35 Ruling On Employers And Contractors

Now, the chancellor has announced the repeal of the 2017 and 2021 changes to IR35. This places the responsibility for the determination of IR35 and the tax liability back with the contractor and away from the end client. This means that businesses will be entitled to take a contractors’ assessment of their status at face value. 

The following statement was issued by the government: 

“The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions. This will free up time and money for businesses that engage contractors that could be put towards other priorities. The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules”.

It’s important to remember that the position for businesses classed as ‘small’ is has always been that a contractor is liable for determining their own status for tax purposes, though they must take reasonable lengths to ensure they are not aiding tax evasion. The IR35 reforms to the private sector only applied to ‘medium’ and ‘large’ businesses, meeting two or more of the following criteria:

  • An annual turnover of more than £10.2 million
  • Total assets of more than £5.1 million
  • More than 50 employees.

What Happens Between Now And April?

The announced amendments to IR35 are only proposed changes, and will still need to be approved and passed as legislation first. The OPW rules contained in Chapter 10 ITEPA 2003 will remain in force until April 6th 2023, and up until that time, the framework is still very much alive and enforceable. Furthermore, it’s important not to take anything at face value at this stage – previous IR35 reform has been beset by delays and challenges, which could well also occur this time around. In the meantime, however, it pays to be prepared. Companies may need to consider whether they will need to update their engagement and onboarding processes for contractors, how they will once again evaluate their contractors’ assessments of their tax status, and whether their current policies and procedures will still be appropriate when the reforms are repealed. Additionally, organisations may wish to consider whether pricing models should be revisited, as less red tape means lower overheads, and possibly welcome savings that can be passed on to clients and customers in challenging times. 

How Will IR35 Changes Impact The Hiring Market?

Many of our clients are keen to understand how the recruitment landscape will be impacted by the planned IR35 changes. The good news is that many of the anticipated changes are positive. After previous reforms were implemented, many skilled and experienced contractors made the decision to move away from previously lucrative interim work and into permanent roles, and some made the decision to take their services abroad. The April 2023 changes will likely see a significant proportion of specialists return to the interim market, along with an increase in companies hiring interim professionals due to the simplification of legislation. Overall, the end of Chapter 10 is a hugely positive step for the interim market – it will remove one of the biggest hurdles to free enterprise between freelance businesses and their clients. And, with greater economic turbulence on the horizon, organisations will have a greater need for skilled interim professionals than ever.

For advice about how your company could benefit from executive interim talent, contact me on for a confidential discussion. 

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