Claim IR35 reform repeal and U-turn cost the government ‘nothing’ called into question

The financial secretary has come under fire for claiming that no additional costs were incurred as a result of the government announcing a repeal of the IR35 reforms and then U-turning on that decision 24 days later.

Victoria Atkins, who was appointed financial secretary to the treasury in October 2022, made the claim in response to a written question posed by shadow financial secretary James Murray on 9 January 2023.

Murray’s question saw him ask the chancellor, Jeremy Hunt, to publish an estimate of the cost to the public purse, including any money spent on IT systems and support staff, after the government announced a repeal of the IR35 reforms in September 2022 before U-turning on the decision the following month.

In response, Atkins wrote: “The government did not incur any additional costs as a result of the announcement of the repeal and subsequent reinstatement of the off-payroll working rules.”

As previously reported by Computer Weekly, the repeal of the IR35 reforms was announced on 23 September 2022 during Liz Truss’s premiership, which ran from 6 September 2022 to 25 October 2022, during the first and only fiscal statement made by short-lived chancellor Kwasi Kwarteng.

The repeal was one of several announcements made during Kwarteng’s controversial “mini-budget”, which caused widespread economic turmoil and whose contents caused the value of the pound to drop to a historic low.

On 14 October 2022, it was confirmed that Kwarteng would be stepping down as chancellor, and three days later, his successor, Jeremy Hunt, confirmed the repeal would no longer be going ahead.

While the repeal itself was not due to come into effect until April 2023, Dave Chaplin, CEO and founder of tax compliance firm IR35 Shield, said it was “stretching credibility” to suggest that during the 24 days between the repeal and the U-turn being announced that no costs were incurred.

“Are we seriously expected to believe that every civil servant on government payroll did absolutely nothing [during this time]? From the business perspective, the market paused, and the advisory ships required an about-turn. That cost money. And then, we had to turn it back again. That cost money,” he said.

“The repeal that never happened was massive news. There are still individuals and firms who think the repeal is still happening, who are now operating non-compliantly as a result.

“It’s no wonder confusion still exists because we also know how much was spent on government communications. Zero. We know how much HMRC spent. Apparently zero. It’s not very responsible of government, is it?” he added.

Chaplin’s sentiments were shared by tax and employment status legal consultant Rebecca Seeley Harris, who previously served as a senior policy advisor to the Office of Tax Simplification.

“I can understand why they are saying that there was no cost because they may not have taken any material action to implement the repeal. Not forgetting that the repeal would not have taken place until April 2023 in any case,” she told Computer Weekly.

“However, I doubt very much that there was no cost at all because I’m sure that HMRC would have been planning what they were going to do to replace the loss of IR35. This could have been to focus their attention on the Managed Service Company (MSC) legislation instead, for example. Even if this was man-hours, or should I say personnel time, there would have been a cost.”

Seb Maley, CEO of IR35 insurance provider Qdos, said he also finds it “incredibly hard to believe” that the government incurred no additional costs as a result of its flip-flopping on the status of the IR35 reforms, because the wider economy would certainly have felt the effects of that decision.

“After the announcement, HMRC resource must have been allocated to planning for the repeal of the off-payroll working rules. This comes at a cost to taxpayers,” he told Computer Weekly.  

“We must also consider the indirect cost. A month of upheaval, disruption and uncertainty caused by news of the repeal and subsequent U-turn impacted the entire supply chain – from contractors themselves to recruitment agencies, umbrella companies and end-clients. The knock-on effect and, in turn, cost to the economy, would have been significant.”