‘Sceptical’ IT contractor sector starts to specify where Liz Truss’s IR35 review could deliver

The contractor sector is trying to come up with a few ‘quick-wins’ on IR35 to make it harder for Liz Truss to wriggle out of her pledge to review the off-payroll rules if she becomes PM.

So despite it being sceptical following many reviews of IR35, personal service companies, and status -- which all led to nothing, the sector has already begun her IR35 review.

At least in effect.

'Targeted change'

Jeni Howard, director of risk and compliance at Evolution Recruitment Solutions is asking her online followers to come forward with IR35 improvement ideas for the ‘Truss review.’  

“I don't think there are many governments that would wholesale repeal the [April 2021 IR35] changes now. But what targeted change would you like to see?” she posted.

Howard is among those aware that only last month, a lack of consensus from stakeholders was cited as a reason by the government for it not even trying to reform employment status.

“The basic output of the recent review was, ‘Nobody likes the current system but [nobody] can agree on how to change it either -- so we'll leave it for now.’”

'More tangible'

Speaking after an accountant volunteered to run a “full analysis” of HMRC’s CEST, Howard continued: “Perhaps [us] agreeing on the changes will bring about something more tangible.”

A tax lawyer who has advised HM Treasury on IR35, Rebecca Seeley Harris, agrees that a Truss-led government “getting rid of IR35 completely looks doubtful.”

But she too agrees that ‘something’ positive, and specific on IR35 reform could come out of what some contractors are dismissing online as a ‘nothing’ review under Ms Truss.

'Take a good look at the off-payroll rules'

ReLegal Consulting, run by Ms Seeley Harris said: “We would hope that they will take a good look at how the off-payroll rules work, and make some significant amendments.

“These amendments could hopefully be looked at alongside employment status generally. And perhaps the new government can look at a statutory test too.”

If she becomes PM, Ms Truss initially promised to run an Emergency Budget but since criticism of the idea, the qualified accountant has now downgraded it to a ‘fiscal event.’

'Public sector fiasco'

Whether they are provided in a Budget, a fiscal event, or the off-payroll review, former tax inspector Kate Cottrell says she want some answers, if not actions.

Again though, on very specific aspects of IR35.

“Whoever wins out of Truss and [Rishi] Sunak…will they please address or at least [get HMRC or HM Treasury to] explain the fiasco of the public sector getting IR35 wrong?”

In wake of HS2 reserving £9.5m for IR35 errors, the Bauer & Cottrell co-founder added: “Oh, and then tell us how it all works with government departments owing millions to HMRC.” 

At Off-payroll.org, boss James Poyser says Truss or Sunak putting up their hands to admit ‘IR35 didn’t go to plan’ would be a good start.

He today writes exclusively for ContractorUK, here.

'Something worthwhile'

Yet FCSA chief executive Chris Bryce is going to be pushing for much more than a just admission of what everyone (bar HMRC/HMT) already acknowledges.  

“If Ms Truss’s promised review is truly an authentic examination of the whole landscape, then I hope…[her government] produces something worthwhile.

“What’s for certain is that our 19th century tax and employment system isn’t fit for the 21st century.

“And if a real IR35 review is the beginning of a much broader and fundamental look at the whole system, then it is to be welcomed.”

'Sunak should take note of Truss's IR35 review pledge'

Mr Bryce also told ContractorUK that Mr Sunak should “take note” of his rival’s IR35 pledge, with the aim of “modernising our antiquated approach to employment and taxation.”

But neither prime ministerial candidate has anything in their past to indicate any ideological opposition to the off-payroll rules

Quite the opposite in fact, according to Ms Cottrell.

'Both actively defended roll-out of IR35 reform'

“[Just] look at the histories of those currently hoping to be prime minister,” the IR35 specialist began in a statement to ContractorUK.

“Liz Truss was chief secretary to the Treasury from 2017 to 2019 with responsibility for, among other things, ‘Skills and Labour Market Policy’ and ‘Efficiency and Value for Money in the Public Services.’

“Rishi Sunak was chief secretary to the Treasury from 2019 to 2020 with responsibility for exactly the same two areas.  

“Both Truss and Sunak presided over and actively defended the roll out of the off-payroll rules in the public sector in 2017 and in the private sector in 2021. Both were in the cabinet and with Rishi, as chancellor, the message was that IR35 and the off-payroll rules are necessary to make [taxation and work] fairer.” 

'Truss is making the right noises'

Not being vocal about the off-payroll rules -- until now when she is seeking the keys to No 10, explains an assessment from IR35 contract reviewer Seb Maley.

Chief executive at Qdos, Mr Maley believes that while the IR35 legislation does need reviewing “again,” Ms Truss might well be “making the right noises just to win votes.”

Sounding aware that specific aspects of the Intermediaries legislation are already being asterisked for possible submission to the prospective review, the IR35 contract reviewer said:

“The legislation itself remains fundamentally flawed, misinterpreted and misapplied. [And it’s] not helped by HMRC’s IR35 tool, which simply isn’t up to scratch.

“[CEST] actually increases non-compliance,” added Mr Maley. “[As] HMRC’s very own IR35 status tool is unreliable…any IR35 review needs to be independent and far-reaching.”

'Everything is working fine'

Helen Christopher, chief operations officer at Orange Genie Accountancy is similarly concerned by the nature of the prospective review.

“Since HMRC [like to] run these reviews in conjunction with the Treasury, it’s hard to see how a new review would produce a substantially different outcome,” Ms Christopher, a chartered accountant told ContractorUK.

“In fact, unless a truly independent review is held where all evidence is included and given a fair hearing, I fear we will end up with the same conclusion that 'in the main everything is working fine.'”

'Holiday pay and sick pay'

Online, optimists are pointing out that Ms Truss’s reported comments might hold clues as to the sort of tweaks that a government led by her would wish to make to IR35.

“She has [according to the Sun on Sunday] said that…those affected [by IR35] don’t have the same security as employees, in areas such as holiday pay and sick pay”, says Forgotten Ltd.

The limited company lobby group added: “[Truss has also said] that she wants to unleash a ‘small business and self-employed revolution’ as part of jump-starting the economy.

“If only Rishi Sunak hadn’t been so keen to squash the small business sector [during coronavirus lockdown], perhaps a revolution wouldn’t be needed.”

'Point out IR35 reform's failings and unintended consequences'

Despite having reservations about the IR35 review, accountant Ms Christopher sounds ready to play her part, particularly if identifying specific problem areas of IR35 takes off.

“The imminent change of prime minister is as good a time as any to ensure that IR35 stays on the agenda and that the contractor sector continues to point out both the reformed legislation’s failings -- and its unintended consequences.

“If contractors and supply chain members make enough noise, they must just be able to get another opportunity to try again to influence change.”

'Come up with a few specific changes'

The hope at Evolution Recruitment Solutions is that the noise gets concentrated however.

“If all stakeholder groups could come up with a few specific changes,” said the agency’s compliance director Ms Howard, “we might get more momentum.”

“We have been here before -- and with no good result,” reflects the Freelancer & Contractor Services Association (FCSA) CEO Mr Bryce, hinting at the need to change tack.

'Restrictive'

He also told ContractorUK: “IR35 is restrictive to genuine freelancers and small businesses. It fails to recognise the clear differences between the employed and the self-employed.

“It cannot be right that the self-employed are forced into ‘no-rights-no-benefits employment’ while at the same time being hit for all the employment taxes.”

But the economy (including the prospect of recession), the cost of living crisis and the war in Ukraine all threaten to make the foreign secretary very busy in her first 100 days in office, should she become prime minister.

'Contractors suffering'

“All these issues will have to take priority [over reviewing IR35], and for a very long time,” cautions Ms Cottrell, who listed the trio of pressures on the new prime minister.

“So any meaningful change to the plight of all the contractors suffering with the IR35 off-payroll rules can be nothing more than wishful thinking -- just as it has been for more than 20 years now. A glimmer of hope from Ms Truss with her pledge? Perhaps but don’t hold your breath.”