Government U-turn on IR35 relaxation

Plans announced only last month to scrap last year’s controversial IR35 off-payroll tax reforms, which require larger transport operators to assess whether drivers should be taxed as employees via PAYE, have now been reversed by the new chancellor, Jeremy Hunt.

The move comes as part of a wider climbdown on a number of fiscal measures that were announced by the previous chancellor, Kwasi Kwarteng, in September.

It follows a chaotic few weeks for new prime minister Liz Truss, which have seen the government forced to row back on a raft of key policy positions in a bid to quell market uncertainty.

The tax reforms introduced last April, which can lead to enforcement action from HMRC against those in breach, made hauliers responsible for determining whether drivers fell within the scope of so-called IR35 or off-payroll rules.

These were designed to help ensure that self-employment status is not used to reduce income tax and national insurance liability where a driver would otherwise be an employee of the company they are driving for.

Mr Kwarteng’s announcement last month would have next year returned the responsibility to determine whether drivers fall under IR35, and associated risk, to the drivers themselves – but Mr Hunt’s reversal of that policy this week will mean that hauliers now retain this responsibility.

The 2021 reforms to IR35 have been cited as a key factor in exacerbating the driver shortage, and resulted in many drivers who were registered as self-employed opting to withdraw their services, rather than becoming direct employees in scope of PAYE.

In addition, Mr Hunt is no longer proceeding with previously announced cuts to corporation tax, and will instead increase it to 25 per cent from April.