Reforms to IR35, introduced in April 2021, require workers routinely working with the same contractors to be counted as PAYE staff, or face action from HMRC.
The measure had been widely criticised for hitting the income of such workers and adding to the burden on employers.
In his Mini Budget statement, chancellor Kwasi Kwarteng said: “We can simplify the IR35 rules, and we will. Reforms to off-payroll working have added unnecessary complexity and cost to many businesses.”
He added that repealing the reforms was delivering on a leadership campaign promise made by prime minister Liz Truss. She had described the rules as “unfair” because it treated small traders the same as global businesses.
The reforms were initially rolled out for the public sector in 2017, with private firms brought under the regime last year. Medium and large firms were handed responsibility for defining the tax status of a self-employed worker, while for smaller firms the onus was put onto the employee.
The reforms were introduced as a crack-down on tax avoidance, but critics claimed that they would force many out of self-employment and reduce incomes.
They were also linked to a Whitehall drive to increase the number of direct employees in the construction sector, driven by the government and the Construction Leadership Council.
The Association of Independent Professionals and the Self-Employed (IPSE), which represents freelance contractors, said today's announcement reversing the reforms came as a “huge relief.”
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