Kwarteng scraps IR35 rules for agency social workers

Changes mean locum staff paid through companies - not employers - will be responsible for ensuring they comply with taxation requirements from April 2023

Kwasi Kwarteng
Chancellor of the Exchequer Kwasi Kwarteng (credit: HM Government)

The government will scrap 2017 rules designed to ensure agency staff pay equivalent tax to permanent employees, Chancellor Kwasi Kwarteng announced today.

From April next year, employers such as councils will no longer be responsible for ensuring that agency staff who provide their services through a company pay appropriate levels of tax.

Instead, the responsibility will revert back to the individual worker, as was the case before 2017.

Under the so-called IR35 rules, introduced in 2000, staff who were paid through an “intermediary”, typically a company, but worked in a similar way to an employee were required to pay equivalent income tax under PAYE and national insurance contributions.

‘Widspread non-compliance’ with tax rules

The 2017 reforms were designed to tackle what the government described as “widespread non-compliance” with IR35. To prevent agency staff from avoiding tax by being paid through a limited company, it made the public body engaging them responsible for determining whether they fell under IR35.

This gave agency social workers three options: going directly onto agency payrolls (on a reduced hourly rate), work via an umbrella company (through which they should accrue some employment rights, such as holiday pay) or stay responsible for their own limited company but be taxed at source.

However, this will no longer apply from 6 April next year.

Under the Treasury’s ‘growth plan’, unveiled today by Kwarteng: “From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions.

“This will free up time and money for businesses that engage contractors, that could be put towards other priorities. The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules.”

Impact on agency social work ‘uncertain’

Agency social workers told Community Care that the 2017 changes led to a drop in their income, while half of practitioners we surveyed recently said that they would consider going locum in response to the cost of living crisis.

This raises the prospect that the government’s reforms will lead to more social workers turning to agency work at a time when directors are raising significant concerns about the practices of employment agencies and the costs of engaging locum staff.

However, Kate O’Regan, company director of not-for-profit umbrella company Social Work Employment Services, said it was “too early to say what the impact of the proposed changes to IR35 will be on the sector”.

“We will need to see what will be in the new legislation before we’re able to provide further guidance,” added O’Regan, whose company, which is exclusively for British Association of Social Workers members, was set up in 2020 to enable locum staff and employment agencies meet their IR35 obligations.

‘Spiralling costs of agency social work’

In its response to the announcement, the Association of Directors of Children’s Services (ADCS) reiterated its concerns about more social workers turning to locum work. Chair of the ADCS Workforce Development Policy Committee, Rachael Wardell, said:

“ADCS has long raised concerns around the spiralling costs of agency social work on local authorities,” said Rachael Wardell, chair of the association’s workforce development policy.

“It is vital that we have a strong consistent, permanent workforce to support children and families but we are seeing more of our workforce turning to agency, particularly among newly qualified social workers and this is a growing concern.

“ADCS is also concerned about the practice of some agencies who are only offering teams of social workers rather than individual workers, and at high costs. This is only putting even greater strain on already stretched budgets and it does not benefit children and families.

“Local authorities will be considering what the changes to IR35 taxation rules mean for them, their workforce, and most importantly, for the children and families we work with – we urge government to do the same.”

While councils were “looking at their own employment offer so that it better reflects what social workers want and need”, Wardell said that they needed government help to increase the sufficiency of practitioners to reduce reliance on agency work.

She added: “The flexibility provided by agency social workers can be helpful in managing peaks and troughs in demand for services, however, it’s important that the market is effectively managed to ensure it provides a quality workforce and value for money.”

Kwarteng plan backed by agency and freelance bodies

Organisations representing agencies and freelance staff welcomed Kwarteng’s announcement.

Neil Carberry, chief executive of the Recruitment and Employment Confederation, said that “ditching the botched changes to IR35” would be “a huge help”, though said it would be a challenge identifying how they should best be replaced.

Andy Taylor, director of policy at the Association of Independent Professionals and the Self Employed, said it was “delighted” by the change, as the 2017 reforms created “unnecessary complexity” for agency staff and employers.

However, he said the association was concerned that the underlying IR35 rules would stay in place, adding: “We hope to work with the government to make further progress on this issue in the weeks and months ahead.”


More from Community Care

8 Responses to Kwarteng scraps IR35 rules for agency social workers

  1. Karen September 23, 2022 at 9:18 pm #

    Looks like they want all staff to be agency

    • robbie October 7, 2022 at 1:34 pm #

      Is this also true that i read in the guardian today?

      Prof Len Shackleton, an IEA research fellow, wants the government to allow graduates to teach in state schools without teacher training qualifications, as part of a lifting of requirements for entering skilled professions such as law and social work.


  2. Lillian September 24, 2022 at 9:44 am #

    BASW will be pleased.

  3. Jack September 24, 2022 at 1:18 pm #

    This means that thousands of Social Workers will return to LTD Company working again and get caught for huge tax bills in 5 years time, as rogue companies will return to giving misleading information again telling people they are safe when they are clearly not. I will be sticking with umbrella and staying safe, but with rising cost of living and the prospect of larger take home pay this will be too enticing for some workers.

    • Dedicated Socialworker October 8, 2022 at 1:16 pm #

      Hi Jack, there is limited benefit in using an umbrella company as you cant claim genuine expenses, such as accommodation when working away from home.

      After my accountant (who is also my sister) analysed my position as 17 year long locum worker and following implementation of ir35 her advice was to use an agency that offer paye or switch to paye if my current agency offered this. I did just that and my wage did not change. The rate will be lower but you no longer pay employers national insurance and umbrella fees.

      You also have liability if your umbrella company goes bust, even if regulated. They make their money by holding on to your tax payments and investing on the markets.

      Further to advice just yesterday, from April i will be able to have my own ltd company again and i will be able claim accommodation expenses, and others such as fuel to work and training.

  4. Paul September 25, 2022 at 9:25 pm #

    Underlying principles don’t change – if you are deemed to be an”employee “ then you will be still caught under IR35.

    • Penny September 26, 2022 at 8:40 pm #

      The plan itself set out that the reforms to the off-payroll working rules known as IR35 will be repealed from 6 April 2023.

      It said: ‘From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions.

      Workers will be responsible for determining their employment status

  5. SIMON GREEN September 26, 2022 at 3:00 pm #

    Finally, Someone has realised how much of a CON this is.
    Great stuff.