IR35 was created to help stem the tax take losses to the Treasury from employees disguising their employment when being remunerated through PSCs (Personal Service Companies).
A set of rules was put in to deem whether the company being paid was on behalf of someone who would otherwise be a proper employee, rather than a true business - i.e. servicing many varying clients, levels of autonomy, exchangable workers.
The benefit to contractors who work freelance is the amount of tax paid is far less, for an example use our dividend vs salary calculator and you can see the lower rates of national insurance as an immediately benefit - coupled with the incoming 19% corp tax, 19% basic rate of tax and lowered dividend tax rates. Another saving is in the form of expenses claimable by the limited company (something a true employee cannot do to the same extent).
The benefit to the businesses that hire the contractor is the payment they make to the PSC on behalf of the contractor is just a business expense, so no employers' NIC to pay and no employee-related fixtures either such as sick pay, holiday pay etc.
In order to prevent the whole of the UK deciding to set up a PSC and continuing to work for a 'single' employer, IR35 legislation came in and 'deemed' whether the person being paid is actually an 'employee' or a true 'contractor' providing services.
The changes coming in from April 2023 will shift who is responsible if the PSC is caught as being inside IR35 rules, and thusly responsible for repaying all the tax savings accrued and fines. Up until April 2023 it has been the responsibility of the 'engaging' party, the business hiring the contractor through the PSC.
When big business was being chased for unpaid tax due to incorrect classification of employees as contractors, it poured cold water over the contractor market. Due to the perceived increased risk and increased administration cost as well as rules for classification of inside IR35 that were still tough to comprehend.
Another option for the engaging business was to pay the client via an umbrella company, the tax implications of which can be estimated with our IR35 calculator.
Next April the onus will be back on the PSC to make sure they aren't a tool for disguising employee remuneration. If HMRC comes chasing for unpaid back taxes, the PSC will be responsible for any fallout.
The official wording in Chancellor Kwasi Kwarteng's Growth Plan is "... From this date (April 2023), workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs ...".