Liz Truss was the first of the two Prime Minister hopefuls to speak publicly about IR35 as the leadership race draws to a conclusion, committing to review the legislation if she becomes the leader of the Conservative Party next month.
In an interview, the Foreign Secretary pledged to cut taxes for SMEs to unleash a “business revolution” and focused specifically on the issues relating to IR35. She was quoted as saying that IR35 reform is “all about trying to treat the self-employed the same as big business", before stating:
“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.”
These comments come just one month after the government responded to an employment status consultation launched in 2018, in which it was confirmed that Westminster had no plans to align tax and employment status.
Aligning the two would put a stop to what’s known as ‘zero rights employment’, which occurs when contractors operate inside IR35 – a result of paying employment tax but not receiving employment benefits in return.
Launching a review into IR35 would make up one part of Ms Truss’s plan to “back business to deliver”, which she promised to make happen by “stop putting so much red tape, so much tax on business.”
Overall, Ms Truss’s comments have been met with cautious optimism by IR35 experts, many of whom, like Qdos, have continuously campaigned for change – whether with regard to HMRC’s fundamentally flawed IR35 status tool (CEST) or the abolition of zero rights employment.
However, it’s important to note that this wouldn’t be the first time IR35 will have been scrutinised.
In fact, over the years there have been multiple consultations, inquiries and reviews – few of which have amounted to anything. For example, it was as recent as February of this year that the House of Lords published a damning assessment of the impact of IR35 reform in the private sector so far.
From telling HMRC to improve CEST to advising the government to address the issue of businesses blanket placing contractors inside IR35 without reasonable care, the Lords put forward a number of recommendations, none of which have materialised.
This was a point our CEO, Seb Maley, made to Computer Weekly in reaction to Truss’s comments: “Liz Truss must make a review a priority if she becomes Prime Minister. But this mustn't be lip service or a tactic to win the votes of contractors for whom IR35 remains a massive issue.
“Any review of IR35 needs to be independent and far-reaching.”
Rishi Sunak, meanwhile, is yet to speak about IR35, which was reformed in the private sector in April 2021 – when he was the Chancellor of the Exchequer.
His campaign team has, however, criticised Truss for pledging to make £50bn worth of unfunded tax cuts that could plunge the economy into an “inflation spiral”.
Delivering on these promises while providing cost of living support would, according to Sunak, “mean increasing borrowing to historic and dangerous levels, putting the public finances in serious jeopardy.”
To summarise, then, while another review of IR35 should be seen as a step in the right direction, the jury remains out as to whether it would result in meaningful change.
Ask away! One of our team will get back to you!