In a wide-ranging interview with The Sun on Sunday at the weekend, Conservative leadership hopeful, Liz Truss, promised a review of IR35 rules should she win the race and become the next Prime Minister.
While we have heard promises like this from different corners of government many times before, what makes Truss’s comments different is that she appears to empathise with the issues faced by the self-employed, saying in the interview: “The changes that have been made to IR35 are all about trying to treat the self-employed the same as big business. The fact is, if you’re self-employed, you don’t get the same benefits as being in a big company. You don’t get paid holidays, you didn’t get those benefits. So the tax system should reflect that more.”
Do Truss’s comments on IR35 change anything?
It’s refreshing to hear an MP – a Prime Ministerial hopeful no less – recognise that the self-employed don’t get the same rights as employees and ergo that paying the same level of tax is unfair. This sharply contrasts with her rival Rishi Sunak’s comments as Chancellor back in 2020, when he first introduced coronavirus support for the self-employed, after initially leaving them out of financial help schemes entirely. At that time, he said that by giving self-employed people similar support to that of employees, he could no longer justify them paying less tax, disregarding the gap between employment rights and tax status entirely.
For all these reasons, Truss’s comments feel more significant than promises made in the past. It’s a clear indication that she’s heard what self-employed people across the UK are saying about the problems with IR35 and the tax system at large, and Kingsbridge welcomes this. However, our optimism is tinged with a heavy dose of caution.
After all, we’ve been here before. The introduction of private sector IR35 reforms in 2021 (and the public sector in 2017) was laced with flaws, while the HMRC Check Employment Status for Tax (CEST) tool remains completely and utterly inadequate when it comes to producing accurate status determinations – something well documented throughout the industry. This contributes to why so many businesses choose to engage with IR35 specialists, such as Kingsbridge, who have been calling for a review of the rules for a long time.
Damning assessments of IR35 reforms by both the House of Lords and the House of Commons Committee of Public Accounts have been unilaterally ignored by HMRC with no further action taken despite huge failings being found at various points in the system. Other individuals within the Treasury have promised reviews at different times, only for them to end up as lip service with HMRC conducting the reviews themselves and, unsurprisingly, finding nothing wrong with their own work.
IR35 is reportedly worth £1.4 billion to the Treasury and that’s not revenue they would give up lightly, especially when Truss is also promising, should she become PM, immediate wide-ranging tax cuts and National Insurance cuts at a time when there are already deep holes in the country’s pockets after both Brexit and COVID. The government have shown time and time again that they consider the self-employed to be low-hanging fruit when it comes to tax revenue.
Contractors make up a minority of the workforce and can’t really protest by, for example, organising strikes. It’s also very easy to pitch the lower taxes they are entitled to as insidious and unfair to the majority of the electorate – although it’s notable that Truss has chosen not to do this. But, even though Truss is saying all the right things, it could well be simply to gain the support of self-employed party members, without any real substance behind the promise. After so many disappointments, can we wholeheartedly believe that any review that comes from this will be more than just HMRC marking its own homework?
What is Kingsbridge saying?
Ryan Dawson, IR35 Program Manager at Kingsbridge shares the sense of cautious optimism: “I’m pleased that Truss has promised to review IR35 should she become the new PM. However, while positive, I wouldn’t get too excited by this announcement. Reviews in the past have been nothing more than lip service despite industry stakeholders presenting compelling arguments and criticism of the legislation.
Ultimately, the revenue being raised by IR35 reforms helps plug the gap left by COVID and Brexit. On the face of it, revenue that HMRC will do anything to get hold of. We now need an independent and holistic review, followed by clear action, that will make things fairer for engagers, agencies and workers who are equally struggling and being unfairly punished by new legislation.”
This sentiment is echoed by Kingsbridge’s Commercial Director, Andy Robinson: “It is promising to hear that Liz Truss will review the IR35 legislation should she become the next Prime Minister. The problem is we have heard this all before.
Recent reviews of the legislation have concluded that the system is fair and working as expected, when it is widely acknowledged that this is simply not the case. The review needs to be independent and comprehensive to understand the true impact the reform has had on the contractor and freelancer market.”
What would Kingsbridge like to see in an IR35 review?
What, then, would Kingsbridge and, by extension, the UK’s contractors like to see from a review into IR35? First and foremost it needs to be a genuine review: wide-reaching, completely independent of HMRC, and with the involvement of affected stakeholders. It needs to address previous concerns raised by the House of Lords and by the Committee of Public Accounts, as well as concerns raised by businesses, recruiters, expert organisations such as Kingsbridge and, most importantly, the self-employed. It needs to acknowledge, as Truss has, that there is a gap between employment rights and tax status, and that there are benefits and safety nets afforded to employees that the self-employed simply do not have access to.
It also needs to focus on more than just problems, it needs to actively recommend solutions to the tax system so that it works for everyone concerned. Kingsbridge believes this should include factors such as levelling up employment rights and measures to make the system simpler for everybody who uses it.
While we understand that it’s unlikely that HMRC could be persuaded to scrap IR35 legislation entirely, Kingsbridge believes that they should be open to the recommendations of a holistic review that seeks to address the issues faced by many contractors, their clients and recruiters since the reforms were implemented and, in this way, create a system that is simpler and fairer. We hope that Liz Truss will be open to such a thorough review and subsequent reform should she find herself in Number 10 next month.
