Tax Alert: Repeal of IR35 Reforms

In delivering his mini-budget on 23 September 2022, the Chancellor announced a wide-ranging series of tax cuts and reforms, with a focus on incentivisation, investment and making Great Britain more competitive on the global stage. In a significant (and unexpected) U-turn, it was also announced that the reforms made to the IR35 off payroll working regime in 2017 (for the public sector) and in 2021 (for the public and private sector) will be repealed from 6 April 2023.

As a reminder, the IR35 regime (broadly speaking) applies where an individual provides their services (directly or indirectly) through a personal service company (a PSC) or other qualifying intermediary to another person or entity (an End-User) in circumstances where, had the individual provided their services directly to the End-User rather than through their PSC, they would have been an employee (or office-holder) of the End-User.

What has changed?

As result of the 2017 and 2021 reforms, End-Users currently (save in limited circumstances) have an obligation to determine whether or not an arrangement with an individual constitutes deemed employment for the purposes of the regime and, where relevant, provide details of that determination to other parties in the contractual chain. To the extent that the determination of the End-User is one of deemed employment, usually, it will then be for the party in the contractual chain which makes payments to the PSC (the Fee-Payer) to include the individual on their payroll and account for the relevant income tax and national insurance liabilities on the payments made to the PSC.

The regime currently imposes a significant compliance burden on End-Users and, in many cases, has resulted in increased business costs and complexity. This in turn has resulted in many End-Users restricting the use of PSC arrangements and moving to alternative engagement models (in particular through the increased use of so called “umbrella companies”).

It is important to note that the repeals announced by the Chancellor were not of the entire IR35 regime but of the reforms made in 2017 and 2021. This means that, with effect from 6 April 2023, the regime that existed prior to those reforms will once again apply to all relevant engagements, which in turn will mean that it will be the responsibility of the individual / PSC (and not the End-User) to determine employment status and to deal with the resulting tax consequences.

What does this mean for an End-User?

Importantly, until 6 April 2023, End-Users must continue to comply with all their current obligations under the IR35 regime, carrying out employment status determinations, passing those determinations down the supply chain and (where they are the Fee-Payer) paying the right amount of tax and NICs.

Although such obligations will fall away from 6 April 2023, ahead of that date End-Users will need to consider the wider implications this will have for their business and to take action accordingly. For example:

Engagement Models

Decisions and policies around engagement models may need to be re-considered, particularly where PSC prohibitions have been put in place.


In many instances, the current IR35 regime resulted in increased cost within the supply chain, which was often passed up to the End-User through higher fees and charges. The relevance and commercial positioning around fee arrangements may need to be re-considered from 6 April.

Processes and Documentation

Most End-Users spent a significant amount of time reviewing, and updating, their onboarding processes and contractual documentation, to ensure they remained compliant with their obligations under the IR35 regime. Complexities and increased obligations which were introduced into such process may no longer be necessary. Contractual documentation which was amended to deal with the obligations imposed are now likely to become outdated and (unnecessarily) convoluted. End-Users should take the opportunity to review the relevance of, and where appropriate simplify and streamline, such processes and documentation, whilst keeping an appropriate level of embedded protection from business risk and any further changes in the area.


End-Users are likely to want to think carefully about the communications they are having with affected individuals, and other parties within supply chains, in respect of the changes to the IR35 regime. In the same way that good communication has been important to manage on the shift of obligations under the regime to End-Users, good communication will be of equal importance when managing the shift of obligations under the regime back to the individual / PSC.

Ongoing risk management

For many End-Users, the imposition of obligations under the IR35 regime was the first time that attention had been given to supply chains in light of any off payroll tax regimes. In particular, the importance of identification of issues at the stage of onboarding became fully appreciated and embedded.

However, the IR35 regime is not the only off payroll tax regime which can impact End-Users. For example, obligations and liabilities may still arise for End-Users under the managed service company rules, the agency rules and/or the offshore intermediary rules. End-Users should take the opportunity to ensure that the processes adopted to diligence supply chains in respect of the IR35 regime are not completely discarded where such processes will be helpful in managing other off payroll tax risks. End-Users should also remain cognisant of their wider obligations, such as under the Criminal Finances Act 2017, which makes it a criminal offence to fail to prevent certain types of tax evasion by persons performing services on their behalf.

Employment status implications

Note that while the repeal of the IR35 reforms is likely to reduce tax risks in relation to use of PSCs,  businesses need to be aware that some risk in relation to employment status remains.  Recent case law in the employment field has taken a purposive approach to employment status determinations,  so there may be an outside risk of an employment tribunal concluding that an individual working via a PSC is an employee or worker and finding an implied contract. The proposed changes in relation to IR35 do not remove this element of employment risk for businesses that retain individuals to provide services through a PSC.

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For further information and assistance regarding the potential tax implications of the repeals please contact David Smith, Richard Johnson or Beth Simmonds from our Tax Group.

For further information regarding employment status and use of PSCs please reach out to your usual DLA Employment Group contact.