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Reversal of IR35 Reform: What it Means for Recruiters

As part of his “mini budget” on 23thd of September 2022, Chancellor Kwasi Kwarteng announced that the 2017 and 2021 reforms to IR35 would be repealed. This is great news for some of your contractors, but how does it affect you as a recruiter?

What IR35 reforms are we talking about?

IR35, or the Intermediaries legislation, exists to prevent so-called “disguised employees” from getting a tax advantage by working through an intermediary, like their own Limited company (PSC). Contractors who trade through PSCs but are caught by or “inside” IR35 have to pay broadly the same amount of tax as an employee would.  

In 2017, the responsibility for determining IR35 status in public-sector contracts shifted from the contactor to the end client – meaning public-sector bodies now have to assess IR35 status for any contractors they hire, and they are liable for any unpaid tax and penalties if they get it wrong.

In 2021 this reform was extended to the Private Sector, so all end clients who don’t class as small private companies are responsible for assessing IR35 status.

The reforms were extremely unpopular across the contracting industry, as end clients had new costs and liabilities, and contractors lost the ability to determine their own status.

IR35 is not “going away”

IR35 itself is not being repealed, just the reforms. This means that the rules are not changing, it’s just that the responsibility is reverting back to the contractor. This will make life easier for your end clients, and it will mean your contractors no-longer have to accept someone else’s assessment of their status, but it’s important to remember that the rules still apply.

It’s not happening yet

The news has been well received and we’ve seen widespread celebration wherever contractors talk online, but the world has not changed just yet. The repeal is set for April 2023, so at the time of writing the current rules have six months left to run. Until then, the responsibility and liability still rest with your end clients. This could mean:

  • Your clients may delay hiring contractors. You might see clients putting off hiring until April, when they will no-longer need to assess IR35 status, and the risk no-longer sits with them.  

  • Your contractors might take a break. Your contractors can take home significantly less when working inside IR35, so where assignments end between now and April, you might see more of them opting to take some down time rather than accept another “inside” contract.

The combination of these two factors could present real challenges for recruitment agencies over the next six months.

Your clients may still have some liability

The Criminal Finance Act 2017 obliges companies to take reasonable steps to prevent tax evasion in their supply chains. It could be risky for them to turn a blind eye when contractors they know to be inside IR35 work as if they’re outside.

For example, if your clients have assessed their contractors as being inside IR35, it could be unwise to let them all switch to working outside when the reform is repealed in April.

The repeal is not retrospective

If HMRC launches investigations that cover the period when the client was responsible, they would need to defend their position, so they should keep any evidence they’ve gathered in support of their assessments. In the Private Sector this will cover the two tax years running from April 2021 to April 2023. In the Public Sector it’s a period of six years, from April 2017 to April 2023.

Watch this space for further guidance

Despite the disruption and unfair consequences resulting from the reforms, they did succeed in making abuse of the rules more difficult. It’s hard to believe the Government will repeal the reforms and do nothing to combat this abuse. We expect further guidance or anti-avoidance rules will be published before April 2023. We will of course advise as and when more information becomes available.

 If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email

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