IR35 repeal repealed... So where are we now?

During the minibudget in September, the government repealed the recent changes to IR35 – those introduced in the public sector in 2017 and private sector in 2021.

However, shortly after, on the 17 October, the repeal was repealed.

So, what does this mean for businesses in the oil & gas sector, and where does responsibility for IR35 now lie?

The initial minibudget announcement was widely welcomed by businesses and recruitment organisations across the oil & gas sector, with a collective a sigh of relief. The repeal was expected to remove significant compliance and tax liability risk from organisations engaging with contractors, unlocking the benefits of the flexible workforce.

This appeared to be well-timed to help the sector meet demand for experienced contractors that would be expected following an earlier announcement from Liz Truss that she intended to grant new licences for major North Sea projects. Truss confirmed this licencing round on 7 October.

But following an announcement by the new Chancellor on 17 October, the changes to IR35 offpayroll rules will remain in place.

This means that determining contractor tax status and compliance with the legislation remain the responsibilities of the end hirer.

Hirers are also liable for unpaid tax and National Insurance contributions, and can be pursued by HMRC if

found uncompliant or not meeting the threshold for “reasonable care”.

Uncertainty isn’t helpful, particularly in today’s economic climate, so at least retaining the current off-payroll working rules takes the flexible supply chain back to the position we were in a few weeks ago and provides a bit of certainty.

It’s understandable that many feel frustrated with the to and fro. However, the U-turn on the IR35 repeal means that efforts over the past two years haven’t been wasted.

Businesses across the oil & gas sector that took steps to ensure compliance will now benefit from greater access to the flexible supply chain, enabling them to engage contractor resource with confidence.

For those businesses who were hoping for the legislation to be repealed, now is the time to act and set up processes and procedures to ensure compliance with the legislation before HMRC reaches out for evidence.

But could the changes be reversed again? The past few weeks have clearly demonstrated that nothing is set in stone.

As the government has to balance its books and its budget, it’s highly unlikely it will U-turn again.

For HMRC in particular, which is responsible for recouping tax liabilities, it’s easier to ensure compliance with several end hirers compared to thousands of contractors.

It is clear now , however, that the government acknowledges the current

rules aren’t working as expected.

If the rules stay in place exactly as they are, more needs to be done by HMRC in terms of education and support for the flexible labour market.

The complexity of the legislation itself is an ongoing challenge for end hirers, with specialist expertise needed to navigate it.

The pitfalls of the government’s CEST (check employment status for tax) tool have been widely documented.

The use of CEST and other online tools are reliant on the information put into it. If a question is misunderstood or an inaccurate answer input into the software, the outcome will not reflect the contract and will likely

be incorrect. This will not meet the threshold of HMRC’s definition of reasonable care.

Added to this is a misconception that determining a contractor’s tax status is the end of the IR35 journey – it’s only the first step.

IR35 is an ongoing process where regular training, communication and status determination reviews are needed to maintain compliance.

HMRC and the government need to address these challenges to allow businesses to access the flexible workforce as easily and effectively as possible. This will allow organisations to scale up their resource as and when needed.

The IMF and markets have strongly indicated

that the Treasury must rebalance the books through taxation, so HMRC will be proactively seeking to recoup tax liabilities.

It may be tempting to avoid having to comply with the rules by eliminating contractors working via their own limited company from supply chains. But this is likely to have a sting in the tail and reduce access to skilled flexible labour at a time when the North Sea oil & gas sector needs to be competitive.

For this reason, it’s vital that energy businesses using contractors get their house in order now – regardless of potential future changes – to avoid unexpected tax bills and fines further down the line.

U-TURN: In its mini-budget, the government repealed changes to rules for flexible workers. But a few weeks later, reversed the decision.