Liz Truss has stated in a recent interview that once Prime Minister, she will review the IR35 changes that the then Chancellor of the Exchequer, Rishi Sunak, oversaw back in April 2021.
Next Prime Minister
Nothing in life can be taken for granted, but it is looking highly likely that Liz Truss will be the next Prime Minister. The associate director of YouGov, Patrick English, told Al Arabiya that in relation to Conservative Party members who will decide the contest, that: "we are talking about around 30 points" in terms of the lead that Truss has over Sunak.
Patrick English added: "She is ahead over Sunak among the party membership right now. And with many of the members having already voted – around two thirds of them have already casted their ballots, it does not leave a lot of room for Rishi Sunak to catch up on that at the minute." Since, Patrick English gave that interview, voting has indeed now closed.
The winner of the leadership contest will be announced on the 5th September 2022, and the winner will then become Prime Minister the following day on the 6th September 2022.
IR35 Changes
A full explanation of what IR35 (aka the off-payroll working rules) is, is set out here and here.
The IR35 changes were rolled out to the public sector back in April 2017, and were then extended to the private sector to businesses with 50 or more employees on the 6th April 2021, under Sunak's tenure as Chancellor of the Exchequer.
Many predicted in advance of the IR35 extension that it would be “catastrophic for the economy“, with a survey by Harvey Nash Recruitment Solutions having already found that its introduction into the public sector had had a devastating impact there.
The problems with the IR35 changes are as follows:-
- Critics of the IR35 changes point out that they undermine the UK’s flexible economy, in that previously the use of contractors who could be taken on and let go as and when required, made the resourcing and implementation of projects more viable and manageable. This is no longer possible under the new rules, thereby making projects more expensive and risky.
- Critics of the IR35 changes also point to the problems encountered with the Check Employment Status for Tax (CEST) tool, widely regarded as defective, with 42% of assessments found to be inaccurate. Indeed, the Government has been humiliated 3 times over IR35 failings by its very own departments and agencies, failings which have all been traced back to the deficiencies of the CEST tool. As a result of those failings, HM Courts & Tribunal Service (HMCTS), the Department for Work and Pensions (DWP), and the Home Office, have all had to pay out many million of pounds in tax arrears, and interest on those arrears
- The fundamental problem with the IR35 changes, however, is their basic unfairness. Given the lack of alignment of employment status with tax status, those who now have to work within IR35 have to pay the same rates of Income Tax and National Insurance as employees, but at the same time do not benefit from having any actual employment rights. That is, they are treated as employees only for tax purposes, without have the same status within the labour market.
The IR35 changes were ultimately every bit the disaster that most predicted they would be. An IR35 Shield survey found that the IR35 changes had resulted in the following:-
- 47% of the contractors reported that some of the firms that they had previously worked for had now completely banned the use of contractors altogether following the IR35 changes, having chosen to adopt a safety first approach. 65% of the contractors stated that some firms had reduced their use of contractors by more than 50%
- 58% of the contractors divulged that some of the companies that they had once worked for had got around the problems created by the IR35 changes by simply moving the work abroad.
- 35% of the contractors disclosed that some firms have completely cancelled projects due the IR35 changes
A separate report from the Association of Independent Professionals and the Self Employed (IPSE) on the IR35 changes found that 70.8% of freelancers reported that the IR35 extension had had a more detrimental impact upon them than either Brexit or the Covid-19 pandemic, with 35% of freelancers confirming that they had abandoned self-employment altogether.
A Review Of The IR35 Changes
Acknowledging the huge injustices of the IR35 changes, the likely next Prime Minister, Liz Truss, told The Sun that: "The changes that have been made to IR35 are all about trying to treat the self-employed the same as big business. But 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."
In pledging to review the IR35 changes therefore, Liz Truss stated: "I believe that we can grow the British economy faster. But we need to back business to deliver and we need to stop putting so much red tape, so much tax on business, and we need to get on with delivering things quicker."
Reacting to the announcement of a review of the IR35 changes, Andy Chamberlain, the Director of Policy at the Association of Independent Professionals & Self-Employed (IPSE), stated: "We at IPSE are delighted that Liz Truss has pledged to review IR35, should she win the Conservative leadership. These rules are destroying businesses and holding back the economy. While it is positive to hear Ms Truss acknowledge the need to look again at IR35, we have had reviews before and none of them have led to anything meaningful."
Chamberlain added: "This review must lead to radical and tangible change. Nothing should be off the table, including scrapping this dreadful legislation."
