Figures from the contracting industry have been urging the government to not retrospectively apply IR35 rules or chase backdated liabilities for the rules once they are scrapped. The announcement that the controversial IR35 reforms would be repealed next year was made as part of Chancellor Kwasi Kwarteng’s mini-budget last week.
The repeals will need to pass through parliament as part of a Finance Bill, which is expected to go ahead in November, before receiving Royal Assent early next year. Should the bill pass through parliament, it is expected that IR35 reforms would be repealed on April 6 2023.
While the announcement has been met with widespread celebration in the contracting sector, due to the impact that the rules had on freelancers and businesses that engage contractors, some have raised concerns over the sums that companies have invested on preparing for and complying with the rules, which have only been in place since April 2021.
It is seen as highly unlikely that companies would be offered compensation for these investments, but some have urged the government to avoid enforcing IR35 rules retroactively once the reforms are repealed.
IR35 Shield CEO Dave Chaplin said that the HMRC would be “misguided” in seeking to enforce the rules after they are repealed, providing companies can demonstrate that they have acted with reasonable care and in good faith.
Looking specifically at the construction sector, Chaplin said that many firms will have invested six-figure sums getting ready for the implementation of the rules and approximately half of that for each subsequent year and predicted there would be considerable anger within the sector over the repeal of the rules.
Quoted in a report on Building.co.uk, Chaplin said: “The rules were in for 15 months and then scrapped – it’s just ridiculous for firms. That’s not tax certainty. Firms need tax certainty and consistency, so you should be doing things slowly so firms have time to react.”
“Reintroducing the kind of flexibility back into the business that construction firms have been used to for years, that’s going to take time and it is not a simple transition to go back from the new rules to the old rules. There are all sorts of hurdles that firms will have to overcome.”
