Liz Truss announced as new PM: What will happen with IR35?

With the bookie’s favourite Liz Truss announced as the new Conservative leader and, consequently, Prime Minister in the last few minutes, contractors, businesses and recruiters will be keen to see if she will follow through on her promise – made just a week ago – that she will order a review into IR35 rules. Her comments in The Sun on Sunday piqued the interest of those involved with the legislation, as it acknowledged the gap between tax status and employment rights, and gave some hope that – this time – a review might be more than just lip service.

Those involved with IR35, such as contractors, recruiters, hirers and industry experts, will be pleased and quietly optimistic that Liz Truss is the new Prime Minister. As well as the review into IR35, her pledges on becoming the Conservative Party leader included promises of tax cuts and a  ‘business revolution’, giving hope that the self-employed workforce will finally see beneficial and positive action to provide clarity and security for future engagements.

What has happened with previous reviews?

As IR35 Programme Manager at Kingsbridge, I’ve seen many IR35 reviews promised and then fizzle out. In March 2011, for instance, the Office of Tax Simplification was tasked with recommending ways in which IR35 could be improved. It made three suggestions:

1. Suspension followed by abolition;
2. Creation of a series of business tests;
3. A complete overhaul of the way in which IR35 was administered.

The Chancellor at the time was George Osborne and he pledged to overhaul the way the legislation was dealt with by HMRC but, ultimately, opted not to change anything.

In January 2015, HMRC published 32 recommendations on how to improve IR35 with input from the IR35 Forum. However, the specific recommendations lacked substance and did little to bring about certainty of the rules.

The 2015 Summer Budget saw the release of a discussion document entitled ‘How to make IR35 more effective in protecting the Exchequer’. Here we saw the first suggestion that clients may be responsible for determining a contractor’s IR35 status – something which eventually evolved into the public sector IR35 reforms of 2017 and the private sector reforms of 2021.

Since those reforms took place, there have been damning assessments of IR35 by the House of Lords and by the House of Commons Committee of Public Accounts, and yet nothing has changed. Warnings of how the legislation is detrimental to the self-employed have gone unheeded, and recommendation after recommendation has been ignored.

What IR35 review would Kingsbridge like to see?

While history would suggest that this review, if it takes place at all, will change nothing, that’s not to say we won’t be pushing for it. If it happens at all, then we would urge our new Prime Minister to take action before the next General Election, or even pledge it as part of the Conservative Party’s next election manifesto. After all, IR35 is not a priority for anyone in government right now when you consider the cost of living crisis, spiralling energy bills, the war in Ukraine, ongoing Brexit issues, and the country’s COVID recovery. The new Prime Minister has a lot on their plate. But that gives people like myself, and others involved with IR35, to set out what we want to see from an IR35 review – and that’s radical action.

A review would need to be independent of HMRC, instead conducted by the Office of Tax Simplification again. It needs to be far reaching and address concerns raised by earlier reviews such as that by the Lords and the Public Accounts Committee. It also needs to address concerns raised by experts, businesses, recruiters and, most importantly, contractors. Sufficient weight and acknowledgement needs to be given to the fact that there is a gap between tax status and employment rights, which sufficiently distinguishes employees from the genuinely self-employed.

While an IR35 review, along with radical action, has been called upon by businesses like Kingsbridge, it is now required and long overdue in my opinion. My concern is IR35’s priority. The new PM enters Number 10 with one of the most unstable positions in recent memory and will likely have many other important issues to address. Let’s not forget that IR35 has been reviewed many times before, to no betterment, and whilst the new PM’s words are encouraging, they are just that, words. We need to see action because businesses are besieged with IR35 challenges.

My colleague Andy Vessey, Kingsbridge’s Head of Tax, has this to say: “The new Prime Minister has bigger issues to tackle so I doubt that an IR35 review will be a priority and will get pushed to the back of the queue, if indeed it happens at all. While a review would be welcomed, if it materialises, I am not expecting a radical outcome in the near or distant future given that, during its 22 year history, little has been achieved in making IR35 simpler, fairer and able to provide certainty.”

What will happen now?

While Truss’s criticisms of IR35, and her promise of a review, have given me hope that something may finally be changed for the better, past experience has taught me to keep a level head. Even if the review does take place, it’s unlikely that IR35 will be scrapped entirely. After all, it’s worth an estimated £1.4 billion to the Treasury; revenue they can ill afford to give up. But positive reform is needed, which is why contractors, businesses, recruiters, expert organisations such as Kingsbridge, and IR35 specialists such as myself and Andy need to hold the new Prime Minister to account and push for a review that will actually hear our voices and make the changes we want to see.