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Deja-vu: Government U-turns on plans to scrap IR35 tax reforms

Pharmacy employers will remain responsible for determining the employment status of locum pharmacists, after new chancellor Jeremy Hunt scrapped plans to reverse reforms to off-payroll working rules – also known as IR35. 

Kwasi Kwarteng – who was sacked as chancellor of the exchequer last week (October 14) – committed to simplifying the IR35 rules by repealing the 2017 and 2021 reforms, he announced during his mini-budget speech last month (September 23).

The reforms to IR35 have “added unnecessary complexity and cost for many businesses”, he said at the time.

Mr Kwarteng envisaged that these reforms would be revoked from April 6 next year. Repealing them would have made UK workers who provide their services through an intermediary, for example a personal services company, responsible for determining their own employment status.

Read more: Kwarteng scraps IR35 tax reforms, removing ‘ambiguity’ for pharmacists

However, new chancellor Jeremy Hunt confirmed yesterday (October 17) that the government had “decided to make further changes to the mini budget immediately, rather than waiting until the medium-term fiscal plan”, which is scheduled for October 31.

“We will no longer be proceeding with the reversal of the off-payroll working reforms introduced in 2017 and 2021,” he announced.

It follows weeks of turmoil after Mr Kwarteng’s mini budget spooked the financial markets.

The changes “will support confidence and stability”, Mr Hunt added. “We need to do more, more quickly, to give certainty to the markets about our fiscal plans.”

 

Retaining IR35 reforms to save “around £2 billion”

 

The IR35 rules, which changed in April 2021, were designed to tackle what the government described as “widespread non-compliance” with IR35.

The reforms aimed to ensure that individuals who are working like employees but through their own limited company pay the same income tax and national insurance contributions as others who are directly employed by a company.

Medium and large organisations – which the HMRC defines as having a “turnover of more than £10.2 million, a balance sheet total of £5.1m and/or more than 50 employees” – were made responsible for determining if the IR35 rules apply to the contractors they engage with.

However, the change proposed by Mr Kwarteng had however been seen as “welcome news by both locum pharmacists and pharmacy contractors”, Silver Levene accountant Vinku Shah told C+D last month.

Scrapping this rule removes the “ambiguity and confusion that it caused” and also presents “a large cost saving” for pharmacy owners, he said. 

He told C+D today (October 18) that “backtracking on this has certainly brought back uncertainty to both businesses as well as locum pharmacists”.

With “locum rates at an all-time high...partly because of these reforms, business growth will continue to be stifled”.  

But in a separate statement published yesterday, the Treasury estimated that retaining the IR35 reforms would save the government up to £2 billion by 2026/2027.

 

“There will be more difficult decisions to take”

 

While the government is “prepared to act decisively and at scale to regain the country’s confidence and trust”, it also warned that “there will be more difficult decisions to take on both tax and spending”, the Treasury added.

This will include “doing what is needed to lower debt in the medium term”, it said.

“In light of this, government departments will be asked to find efficiencies within their budgets. The chancellor is expected to announce further changes to fiscal policy on October 31 to put the public finances on a sustainable footing,” it added.

Read more: PDA: Locums may assist contractors in HMRC IR35 probe but ‘no obligation’ to do so

Following the introduction of IR35 rules, HM Revenue and Customs (HMRC) began undertaking an investigation into how pharmacy contractors engage off-payroll locum pharmacists and other off-payroll workers.

However, it remains unclear if the investigation had been paused following last month’s mini budget.

A spokesperson for HMRC told C+D today that the organisation cannot confirm or deny open investigations.

They added: “We are constantly engaging with customers, advisors and representative bodies across a number of sectors to understand working practices and produce a view on roles and contractual terms where employment status is not clear, in order to help people to get their tax right.

“This also includes exploring how best to promote consistent tax treatment.” 

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