Liz Truss defends her IR35 stance, saying reform ‘would cut red tape’

Liz Truss has used a comeback speech to defend her stance on IR35.

The former prime minister, who has kept a low profile since her mini-Budget derailed the UK economy, said on Monday that “reforming IR35 would cut red tape for small businesses.”

Her comments have been seized on as a recommendation to prime minister Rishi Sunak and chancellor Jeremy Hunt, ahead of Autumn Statement 2023, raising hopes of action on IR35.

But in the context of her speech, made to the Institute of Government, Truss was actually just justifying why her own appointed chancellor, Kwasi Kwarteng, moved to repeal IR35 reform.

'Needed to show a Britain open to talent'

“We needed to cut the top rate of income tax to show that Britian was open to talent,” the former PM began to the institute, reasoning why Mr Kwarteng announced what he did.

As to other parts of his mini-Budget, Truss justified: “Reforming IR35 would cut red tape for small businesses, and a return to VAT-free shopping would make our cities more attractive.”

Even if Truss’s comments on IR35 are a recommendation, three experts told ContractorUK that they don’t hold out much hope for IR35-related U-turns on November 22nd.

'Out of the question that Autumn Statement 2023 will contain IR35 U-turns'

Qdos, an IR35 contract review firm says reversing rules which have applied since April 6 2017 in the public sector, and April 6 2021 in the private sector, “seems out of the question.”

The Freelancer & Contractor Servies Association says contractors are “unlikely to see much mention” of reforming IR35 reform, at what will be Mr Hunt’s second Autumn Statement.

Bauer & Cottrell says its status advisers ‘definitely won’t be holding their breath’ that Truss’s comments amount to anything, especially not “with the offset-fix all but confirmed.”

Truss isn’t the only veteran Tory MP to have this week put IR35 in the crosshairs.

'Need to reverse both sets of off-payroll working rules'

Speaking to LBC’s Tonight with Andrew Marr on Monday, former Cabinet minister Sir John Redwood cited “disagreements with the Truss Budget,” but then stated -- “we need to reverse” the 2017 and 2021 changes to IR35.

A long-time critic of IR35 (of 2000), Sir John said the “pretty cheap” reversal -- at least in “Treasury accounting terms” -- would “make it easier for people to work for companies.”

Sounding aware that many companies just like many taxpayer-funded organisations had knee-jerk reactions to the two frameworks, by banning PSCs outright, Sir John said:

“We need to…make it easier for people to…have multiple clients, so they can build their small businesses and be self-employed. That would be transformational.”

'Modest tax changes'

But shown Sir John’s comments, FCSA’s chief executive Chris Bryce, Qdos chief executive Seb Maley, and Bauer & Cottrell’s senior tax consultant Charlie Hemsworth each declined to change their verdict of no big changes to IR35 (or IR35 reform) at November’s Autumn Statement.

Sir John said: “If we could get our 800,000 self-employed back, that would be a lot more tax and a lot more business activity to our benefit."

Seeming to address Number 10 and Number 11 directly, the Conservative MP continued: “You’d get a visible impact in growth from self-employment and small businesses if you made these modest tax changes now.

“And in a year’s time when you might be thinking of a general election, you’d have something to show for it and you’d have more small businesses and self-employed saying ‘At last, we’ve got a bit of support.’”

'Vagaries of IR35'

As well as reversing IR35, Sir John told the radio show that he wants the government to act on the VAT threshold of £85,000, arguing that it disincentives small companies to grow.

The FCSA’s My Bryce told ContractorUK: “Like Liz Truss, Sir John Redwood has consistently shown an interest in and a good understanding of the vagaries of IR35.

“Both politicians have repeatedly made calls for a review or reform. It would certainly boost the government’s growth agenda and bolster the UK’s flexible economy if this was adopted as policy by the current chancellor Jeremy Hunt.

“My view is that, regrettably, we’re unlikely to see much mention of this in the Autumn Statement…but I always live in hope of a pleasant surprise.”

“All I would say is that… Sir John Redwood has been campaigning against IR35 for years, and we all know what happened when Truss acted on IR35 when she was at the helm,” said a downbeat Ms Hemsworth, of Bauer & Cottrell. “So no -- don't expect any big [IR35] announcements at Autumn Statement. Roll on the general election.”