Labour backtracks on ‘halt IR35 reform’ pledge

Labour appears to be backtracking on its pledge to scrap private sector IR35 reform, given that now it only "doesn’t think” a Jeremy Corbyn-led government would introduce it.

In an interview on Friday, shadow business secretary Rebecca Long-Bailey twice said her party would merely “look at” the 2020 reform, so it could seek a "fairer" replacement.

She was asked to give “absolute clarity” on Labour’s stance on the reform, in light of her colleague Bill Esterson deleting Tweets which said stopping the April commencement was party policy.

'Causing anguish'

But in her interview on the radio, Ms Long-Bailey would only say: “That system is certainly not fair and it’s causing a lot of anguish to those who are self-employed.”

Pressed by Radio 5 Live’s Rachel Burden, the MP added: “What we’re saying is we need to consult on a system that’s fairer for those businesses but we don’t think IR35 is appropriate”.

At the time of writing, however, such a review of 2020’s off-payroll framework is absent from Labour’s manifesto. It also fails to feature in the party’s new ‘20 pledges for Small Businesses.’

'Doesn't sound like a commitment to scrap'

They are omissions not lost on status firm Re Legal Consulting. “When we listened to Ms Long-Bailey….it didn’t sound like they [Labour] were committing to scrapping IR35 [reform].

“Rather, [she committed to] consulting on it. But while we listened to the radio, up popped Labour’s 20 business pledges, yet it does not include [anything about] IR35,” the firm says.

Even if the pledge to review the 2020 rules is now inserted into either Labour document, Thomas Wallace, head of tax at WTT Consulting, does not believe much will come of it.

“[All that] is being promised is a review of the proposed changes,” he observed.

“[And] whilst it is understandable [that contractors are hoping that whichever political party triumphs at the polls will scrap IR35 reform], let's be clear -- IR35 has been around for 19 years.”

'Donkey's years'

Lawspeed agrees, indicating that it too sees little cause for celebration by those who want the reform stopped, partly due to what the law firm implies is the deeply-held views of officials.

The firm said: “There have been calls for [a] review of IR35 for donkey’s years and alternative ideas to tackle the tax avoidance claimed by HMRC have been put forward time and again.

“There has been consultation after consultation since early 2016 concerning the scheme for the public sector, and again for the extension of the scheme to the private sector.

“We have never been told why the many constructive comments and warnings have been repeatedly rejected.”

'Labour has now firmly committed'

Contractor Philip Ross, who chairs Labour’s Business Policy Group on Self-Employment, is more optimistic.

Speaking after Ms Long-Bailey’s interview, he said he was “pleased” Labour had “firmly committed” to review IR35 reform with a view to replacing it, as he has submitted to the party.

“Good news if it happens,” a sceptical-sounding IT contractor Alan Watts replied online. “Any [Exchequer] gains will be more than cancelled out by their [Labour’s] other planned tax rises.”

'Urgent clarity needed on dividends'

With an eye on the party’s other business tax plans, the Federation of Small Businesses expressed concern on Friday by the one omitted from the ‘20 pledges’ but which is contained in Labour’s manifesto-costings paper.

“Urgent clarity is needed around how Labour plans to protect small firms with moderate turnovers from its proposed changes to dividend taxation.

“The party promised that no business-owner making less than £80,000 would be targeted if it wins power,” the group said. “But, as things stand, it’s hard to see how that will be the case.”

'It might have been more creditable'

Nevertheless, one commitment in the ‘pledges’ document which PSCs may welcome is Labour’s unambiguous vow to scrap Making Tax Digital for firms below the VAT threshold.

It seems that commitments put in writing (like the vow to axe quarterly reporting for firms with turnover under £85k), are the only commitments that some advisers to contractors will now take seriously.

“If either party had committed to reviewing [IR35 reform] before the general election was announced it might have been more credible,” says Re Legal Consulting's founder Rebecca Seeley Harris.

“But, neither Labour nor the Conservatives have committed themselves in writing to either scrap or review IR35 [reform]. Both are acknowledging that it is a bad tax but, I suspect the lure of the £1.3bn reported tax gap is very attractive.”

'Foolish'

Matt Fryer, compliance director at Brookson Legal said: “An IR35 review is unlikely to result in an abandonment of the policy altogether given the £1.3bn of additional tax which the Treasury believe this policy could generate. Businesses would be foolish to halt their preparations now.”

Referring to Labour’s position on dividend taxation, but now seeming equally applicable to its position on IR35 reform, the FSB’s Mike Cherry said: “If this party wants to show it’s on the side of small businesses, it needs to clear up this situation, and fast.”

To provide Ms Bailey-Long’s comments with fuller context, and given that some of her comments are open to interpretation, a transcript of her radio interview has been published separately today by ContractorUK.