Private sector IR35 reform overseer Rishi Sunak becomes UK prime minister

The contractor sector is setting aside its many reservations about Rishi Sunak, who yesterday won the Conservative Party leadership contest to become UK prime minister.

Once both critical of Mr Sunak or his IR35 reforms of 2021, contractor group IPSE and accreditation body the FCSA, told ContractorUK that they now back his appointment as PM.

Even tax advisories helping contractors hit by the ex-chancellor’s off-payroll rules, like IR35 experts Bauer & Cottrell, and HMRC dispute firm WTT Consulting, gave guarded welcomes.

'Relieved the Truss-mess is over'

Agents are supportive too but, like the advisories, mainly because the UK needs “stability” (which Mr Sunak vowed yesterday), following the turmoil of the Liz Truss-led government.

“Despite describing Rishi’s last Budget as drier than a bone, I for one am relieved that the awful Truss-mess has been concluded as quickly as it has been,” says agent Natalie Bowers.

Boss at Bowers Partnership, she also told ContractorUK: “Recruiters and PSCs were cheering when the previous chancellor [Kwasi Kwarteng] announced the off-payroll rules’ repeal.

“But it became patently clear very quickly that his un-costed, unsustainable Mini-Budget was financial suicide for our country.

“And so yes, although Mr Sunak has ‘form’ in the contractor sector, I’m now focussed on the financial stability of the country as a whole, and not just our own section of it.”

'Desolate wasteland'

In Sunak replacing Truss at Number 10, the UK contractor sector gains a prime minister who as chancellor championed 2021's IR35 rules, and loses a PM who wanted the rules reviewed.

“True, but having IR35 reviewed or repealed while the entire economy…becomes a desolate wasteland would have helped no contractor either,” tweeted a data engineer.

Another ContractorUK reader echoed: “[Contractors supporting Truss on IR35 grounds alone reinforces] the view people have of contractors as a purely self-interested group.

“When will people learn that there is no prosperity if only a small group benefit and the majority suffer?”

'Sunak ignored small business owners during covid'

A small yet enterprising group which suffered under Sunak as chancellor is on the mind of Richard Norman, a limited company director, however.

“During the pandemic, it was the first time in over 30 years of running a business that we needed some government financial help, but you completely ignored the plight of us and thousands of similar small business owners like us.”

Continuing to address Mr Sunak directly before the 42-year-old former hedge fund manager yesterday became PM – the youngest British PM in more than 200 years, Mr Norman added:

“Now to make it worse, you are going to create a deeper recession, while also increasing corporation tax for the same businesses that you previously ignored.”

'NICs increase reversal may now be reversed by Sunak'

But corporation tax might not be the only HMRC liability affecting contractors which is now heading for a hike under the new First Lord of the Treasury.

Orange Genie Accountancy’s chief operations officer Helen Christopher told ContractorUK:

“Rishi has promised to cut taxes when he can, but he has always taken a hard line, saying that taxes would have to stay high if the government were to be able to balance the books.

“My fear is this may also mean that the recently repealed NI increase may be about to be reversed again, and the Health and Social Care Levy will be introduced from April 2023.”

'Don't expect any orders from Number 10 to review IR35'

A chartered accountant, Christopher explained that IR35 reform is invariably staying in place, given that the chancellor who introduced it has now landed the UK’s top job.

“Since private sector IR35 reform came in on Rishi’s watch, and given he was widely reported as not recognising the plight of [limited company] contractors during covid, I don’t expect him to order any reviews or changes to IR35”, she said.

Former tax inspector and off-payroll expert Kate Cottrell agrees, saying the government’s pledge at Mini-Budget 2022 to repeal IR35 reform will soon be a “distant memory.”

She said: “It’s good to have this [question of who becomes PM] settled so soon. But with Mr Sunak running the show, the move to scrap his off-payroll rules is one that will never return.”

'New PM should keep former PM's IR35 review commitment'

HM Treasury has twice been asked to provide the date or details of the IR35 review promised by Truss, and twice declined.

Yet the FCSA isn’t keen on government wriggling out of its commitments, even if the IR35 review pledge was made by an outgoing prime minister when she wasn’t prime minister.

“We urge Mr Sunak to keep his predecessor’s commitment to a thorough and comprehensive review of IR35”, the Freelancer & Contractor Services Association says.

In a statement last night, FCSA’s Chris Bryce continued to ContractorUK: “I’d like to congratulate Rishi Sunak on becoming leader of the Conservative Party and the UK’s next prime minister.

“While we still have strong concerns regarding Mr Sunak’s previous lack of support for the freelance sector, especially during the covid crisis, we hope that his appointment brings the stability and steady hand that business requires to tackle the huge challenges ahead.”

'Political and economic stability is much-needed'

IPSE’s Andy Chamberlain regards Mr Sunak’s appointment as PM in a similar light.

“We congratulate Rishi Sunak on becoming prime minister. We hope Mr Sunak can bring about much-needed political and economic stability, which will benefit everyone, including those who work for themselves,” said Mr Chamberlain.

But the need for the new PM to provide “stability” does not sit well with anything but the status quo on IR35 continuing, warns Graham Webber, formerly of HMRC.   

Moreover, Sunak’s self-set brief to “restore some confidence to the financial system and to not make rash promises” will “push much-needed repeal” of IR35 reform “down the list of priorities.”

'Unpopular'

Now tax director at WTT Consulting, Mr Webber explained his assessment to ContractorUK: “The system of end-clients making decisions in this space is not popular.

“But businesses have sunk some resource into this, and [Sunak] may think the incremental cost of keeping this going for another 12 months, is not going to cause market reaction.

“[Or, he’ll keep the 2017 and 2021 rules in place because] the proposed repeal would have cost a few billion. And at the moment, there is not that sort of spare capacity in the system.” 

'Public and private sector off-payroll rules here to stay'

Businesses are also fed up with the back and forth on IR35.

And so to avoid irritating firms further, the new prime minister keeping the rules which he himself introduced seems the most likely outcome, reasons IT contractor recruitment agency VIQU.

“Contactors believe more than ever that IR35 [for small companies] and the off-payroll rules [for all other engagers] is here to stay”, says the agency’s Matt Collingwood.

'Numerous contractors may now go perm'

VIQU’s managing director, Mr Collingwood further told ContractorUK: “We had started having discussions with candidates about moving from perm roles into contracting.

“But we’re now hearing from numerous contractors that they may move into permanent positions because, as one said, ‘it’s just not worth it now with all the incoming tax increases.’

“We also had a couple of conversations with businesses that had increased their reliance on perm over contractors since April 2021, and who were considering re-examining their stance on contractors given the repeal. But now these conversations have been paused. Again.”

'Sunak policies have been short-sighted'

Such to-ing and fro-ing, with sharp consequences for people’s livelihoods and take-home pay, is the result of “short-sighted” tax policy decisions, argues Qdos’s Seb Maley.

“Many of which Mr Sunak himself introduced while serving as chancellor,” added Mr Maley, CEO of the IR35 contract review firm.

“In recent years, the independent workforce has been hit again and again…[so] the [new] prime minister has a long road ahead to win the support of the self-employed”.

'Sunak failed to make good on his promise'

An advocate of the self-employed on the NHS, Dr Iain Campbell is among those who the new prime minister might like to remember on any journey he undertakes to build bridges.

“[As chancellor] Sunak promised the NHS ‘whatever it needed,’” Dr Campbell, formerly the general-secretary of locums body the IHPA began last night.

“But then, when Lord Bridges quoted my submission [to the Select Committee on Economic Affairs Finance Bill Sub-Committee’s Off-Payroll Rules Inquiry] in which I brought up Sunak’s promise, in the context of the urgent need to suspend the IR35 reforms to enable adequate Intensive Therapy Unit staffing…Sunak subsequently failed to make good on this promise.”

Formerly the chair of the Self-Employed Alliance, Dr Campbell added: “I am hopeful that, now he has the top job, he will perhaps have more freedom to revisit this… but his inaction as chancellor during the covid crisis does give pause for thought.”

'IR35 hand grenade'

On social media, posts by IT contractors indicate that ‘pause for thought’ is to put it mildly.

“Rishi Sunak?” questioned one. “You [mean] the guy who threw the IR35 hand grenade into our industry and blew it up?”

Another contractor, accusing the PM of the same action to the detriment of the same taxpayer group, reflected: “Sunak threw the self-employed over the biggest cliff during covid.”

'As chancellor he knowingly excluded millions of self-employed'

Independent work champion IWORK summed up after Sunak was applauded yesterday at Tory party HQ, following Commons leader Penny Mordaunt dropping out of the contest.

“[We] can’t help but think that Rishi Sunak’s appointment is bad news for the self-employed,” said IWORK founder Julia Kermode.

“Just look at his track record. He rolled out IR35 reform, along with various other tax increases, and knowingly excluded millions of self-employed people from covid[-income] support.”

Contractor accountant Alan Broome, managing director of Acumenica echoed on LinkedIn: “There will be a significant number of limited company owners who will NOT have forgotten how they were left behind by the covid support schemes -- and who will NOT be at all happy at his appointment.”

'Conspiracy theories'

Elsewhere online, contractors are also not forgetting a dispute over whether Mr Sunak’s wife was paying enough tax, and how the then-chancellor seemed flummoxed by a card-reader when paying for petrol.

A few PSCs are also not forgetting that Mr Sunak’s father-in-law Narayana Murthy, a billionaire, is the founder of Infosys which, for being a consultancy, is the type of business that some end-users not engaging PSCs since Mr Sunak’s IR35 reforms have turned towards.

“Moving away from the conspiracy theories,” said VIQU’s Mr Collingwood, “the consensus I’m hearing is that during his time as chancellor, Sunak always flew the flag for [economic prudence] and the falling unemployment rate”.

This mainstream view of the new prime minister (often heard when employers praised the furlough scheme -- at odds with micro-employers who condemned it), is the view Number 10 will be hoping has cut-through.

'Reputation for being a calm, experienced, steady hand'

WTT’s Mr Webber reflected: “My [stance] on the coronation of Mr Sunak as Conservative Party leader and PM is that the Tories have opted for the only option available to them that demonstrates any credibility.

“And that credibility is based on his reputation for being a calm and steady, experienced [economic] hand, who is likely to be seen by the markets as bringing a sense of stability.”

An expert on tax disputes, Mr Webber said his advisory would like to see some of Mini-Budget’s proposals reinstated by the Sunak-led government as soon as Medium-Term Fiscal Plan 2022.

'Opportunity for the contractor sector'

“We think that is perhaps wishful thinking [however], and that we will not see any real action until March 2024,” Mr Webber cautioned, but then clarified:

“That could be seen as bad news. But it could also be an opportunity for the contractor sector to propose a real reform [to the new Sunak-led government], rather than going back to the same old, same old.”

Webber isn’t alone in sensing ‘opportunity’ – perhaps why the reservations about Mr Sunak, who only became an MP in 2015 but now becomes Britain’s first Asian PM; first Hindu PM, and its first non-white PM as well, are being put aside.  

'Sunak now has an opportunity'

Hinting he too thinks bygones may need to be bygones in the current economic and political climate, is the policy director of the Association of Independent Professionals and the Self-Employed.

“As chancellor, Mr Sunak oversaw policy decisions, such as the IR35 reforms, which were detrimental to contractors. But he now has an opportunity to win back the support of these natural Conservative voters,” Mr Chamberlain told ContractorUK.

“We will be urging the new PM to bring a fresh perspective to issues -- like IR35, particularly now that the government has publicly acknowledged the difficulties the rules cause for business.”

'IR35 reform is here to stay'

This week, a petition was launched calling on the government to reinstate the repeal of the public and private sector off-payroll rules of April 6th 2017 and April 6th 2021 respectively.

But the petition has attracted fewer than 800 signatures.

“Whether we like it or not, we fully accept that IR35 reform is here to stay”, said VIQU’s Mr Collingwood, sounding resigned to the frameworks.

“We can’t [do much about those], but we can continue doing our utmost to educate clients and promote all options -- which includes outside IR35 opportunities.”

'No good news for contractors, but none for Sunak either'

Status experts Bauer & Cottrell confirmed last night: “There is no good news for contractors on the horizon, but they can still operate compliantly with IR35 so as to secure some certainty on their incomes.”

Co-founder Ms Cottrell added: “But is Mr Sunak who has landed the most unenviable work – a job nobody seems to want to do, partly because the problems for the UK are mounting and there is no magic money tree. 

“The next six months will see numerous small businesses going bust, together with a fair few large ones. That’s because the cost of living crisis is affecting everyone and much worse is to come in the form of tax rises for all, cuts in public spending and the prospect of war with Russia. All in all, I fear contractors have seen nothing yet, as far as the pain to come – financially and emotionally.”

'Profound economic challenge'

In a televised statement acceptance speech as Conservative Party leader, Mr Sunak yesterday warned that the UK faces a “profound economic challenge.”

Robotic, looking not quite straight down the lens, and ahead of an awkward pause at the end of his brief statement, the new prime minister said he would “work day in day out to” to “overcome the challenges we face.”