Hunt U-turns on IR35 reform for agency social workers

New chancellor scraps plan to abolish rules meaning employers will remain responsible for determining status of staff working off payroll

Jeremy Hunt
Jeremy Hunt

Should the IR35 rules for agency social work be scrapped?

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Jeremy Hunt has scrapped plans to abolish the IR35 rules for agency social workers and other public sector staff working off payroll.

His predecessor as chancellor of the exchequer, Kwasi Kwarteng, had announced the abolition of the 2017 rules in his “mini-budget” on 23 September.

However, Hunt reversed this – and most of the other taxation measures Kwarteng unveiled last month – in a statement to the media this morning.

He will provide further detail in a statement to Parliament this afternoon, but the Treasury has estimated that retaining the rules, along with similar ones for the private sector introduced last year, would save £2bn a year compared with the plan to scrap them.

The U-turn means that employers will remain responsible for ensuring that agency workers who provide their services through a company pay appropriate levels of tax.

‘Widespread 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), working via an umbrella company (through which they should accrue some employment rights, such as holiday pay) or staying responsible for their own limited company but being taxed at source.

In a report published alongside Kwarteng’s statement last month, the Treasury said scrapping the rules would “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,” it added.

The proposed change had been welcomed by the Recruitment and Employment Confederation, which represents employment agencies, and the Association of Independent Professionals and the Self Employed, which represents self-employed staff. The British Association of Social Workers and Association of Directors of Children’s Services responded cautiously to Kwarteng’s plan, saying they would await further details.

However, Hunt’s announcement means it will no longer go ahead.

Efficiency savings to come

The chancellor also said government departments would need to find “efficiencies” from their budgets for 2022-25, with further details provided in the fiscal statement due on 31 October.

In last October’s spending review, the government’s announced that funding for local authorities would rise by 3% a year in real terms from 2022-25. However, the Institute for Fiscal Studies (IFS) calculated at the time that, on a like-for-like basis, the rise would amount to 1.8% a year as government’s figure included the £3.6bn allocated to fund the additional responsibilities councils will assume under the reforms to the adult social care funding system, including the cap on care costs.

The prospectus for council funding has worsened since October 2021 due to spiralling inflation, which means that the 2022-25 settlement is worth much less in real-terms than previously thought, a development the IFS described as a “hidden form of austerity”.

At the same time, a string of reports has called for increased investment in social care amid increased waiting lists and staffing shortages in adults’ services, alongside a fear that the funding reforms are underfinanced, and ongoing pressures in children’s services related to placement costs and bills for agency social workers.

However, with Hunt now expecting departments to make further efficiencies, the situation could get worse still for local authorities and social care.


6 Responses to Hunt U-turns on IR35 reform for agency social workers

  1. Paul October 17, 2022 at 2:00 pm #

    Hunt needs consider impact, at least restore ability to offset legitimate expenes like travel and digs for those working away, as Hammond also stopped this through umbrella companies. MPs have great ways claiming expenses, but locums unable claim a cheap b&b

    • Nick October 18, 2022 at 4:00 pm #

      The IR35 repeal was never about expenses. it’s prob a good idea its scrapped as too many workers don’t understand the rules and would have ended up in trouble with HMRC again.

  2. Susie Johns October 17, 2022 at 2:02 pm #

    Who would have thought the economy so depended on tax paid by local government employees . Hope this makes a significant contribution to the public purse.

  3. Tina October 17, 2022 at 3:02 pm #

    Hunt is now expecting departments to make further efficiencies, the situation will get worse still for local authorities and social care. Hunt has no idea how hard it is to recruit staff – hope he knows what he is doing – clearly making a big decision based on what evidence – his middle class status

  4. St Domingo October 18, 2022 at 3:38 pm #

    For me, it’s just another example of how corporate greed and objectionable behaviour continues to flourish in the wake of eroding social care support and growing government immorality. The ability of those corporate predator’s to make huge profits from events which disproportionally impact upon the most vulnerable and then to openly celebrate with the now ex-chancellor, suggests a level of morality akin to feudal times! Working away from home is, for those who have done it, not an easy way to earn a living and support your family and the ability to recoup linked expenses should, by any moral compass, be more important than uncapping the ‘bonuses’ a banker receives when gambling on the markets. Margaret Thatcher stated in 1975, “let our children grow tall and some taller than others if they have it in them to do so”. However, having ‘it in them’ is precisely the problem with record numbers of working families accessing food banks, a cost of living crises, gas/electric poverty, parents unable to access free school meals, the threat of homelessness and an NHS now not fit for purpose. As the saying goes, you only get out out what you put in!

  5. Reece October 20, 2022 at 10:41 am #

    Social work: hedge funds leeching money from the care sector to offshore accounts to avoid paying tax is immoral and greedy.

    Social work: but why can’t I avoid paying the same amount of tax as my permanent colleagues.