UK Prime Minister Liz Truss is being reminded of her pre-election pledge to review the IR35 tax avoidance reform and what she previously called “very poor” handling of the government’s controversial debt charge policy.
During Truss’ Conservative leadership campaign, which culminated in him becoming prime minister today (September 6), he promised to review the IR35 tax avoidance rules, claiming they were forcing genuinely self-employed people to pay too much tax.
There was a promise Market stakeholders have greeted the deal with a fair degree of skepticismwho said previous reviews of the rules had done little to address the problems and implications posed by IR35
Now that Truss is in power, many of these same stakeholders are calling on him to make good on his promises, while reiterating their claims that his review must deliver “meaningful change”.
Among them is Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), who said his organization was “looking forward” to working with the Truss and his cabinet on the promised review of IR35 rules.
“During the leadership race, Truss talked about ‘challenging orthodox Treasury thinking’,” he said. “If this review is to produce meaningful change – which previous reviews have not done – it needs to do just that: challenge the thinking that led to this damning legislation. If he makes real progress on this issue, he will achieve something that three previous Conservative prime ministers have failed to do – enable one of the most dynamic and innovative parts of the UK economy to thrive.”
How the IR35 rules work in the public and private sector has undergone reforms in recent years, with the government introducing changes that mean contractors are no longer allowed to decide for themselves whether and how they should be taxed based on their work. performed
Instead, responsibility for making these decisions has shifted to public and private sector organizations that employ contractors, who are instructed by HM Revenue and Customs (HMRC) to exercise “reasonable care” when determining whether a contractor’s engagement should fall within or outside the scope. to use of IR35 rules.
An internal-IR35 determination means contractors are treated as employees for tax purposes, meaning they must pay the same tax as a permanent employee. This means they are liable to make Pay-as-Earn (PAYE) and National Insurance Contributions (NICs), whereas an outside-IR35 determination means the contractor is taxed as an off-payroll worker.
A major and recurring criticism of the rules is that although in-IR35 contractors are taxed in the same way as employees, they are not entitled to the same workplace benefits, such as paid sick leave or holidays.
As a result, MPs and campaign groups have expressed concern that this is contributing to an increase in the number of zero-entitlement workers. Although anecdotal evidence suggests that the legislation has also contributed to a “brain drain” of IT contracting talent outside the UK..
Seb Maley, CEO of contracting authority Qdos, said a thorough and fair review of the IR35 rules would help the Trus and the Conservative Party win back the support of the contracting community.
“For too long, freelancers, contractors and self-employed workers have been ignored by government and hit with short-sighted tax reforms and increases that threaten these ways of working,” Maley said.
“But to seize this opportunity, the new prime minister must deliver on his promises. It starts with IR35. Ms Truss said she would review the IR35 rules, which are flawed and cause major problems not only for contractors, but for the businesses involved.”
He added: “An independent review of IR 35 must be a priority as a result of the changes – that is if the new Prime Minister is to unlock the full potential of a truly flexible workforce.”
Truss reiterated his commitment to conduct a review of the IR35 rules during a meeting hosted by the Croydon branch of the Conservative Party on Thursday 18 August, when he was asked about debt relief for another independent review of the debt charge policy, which has resulted in thousands of contractors receiving life-changing tax bills. doing
The loan charge policy, introduced in Budget 2017, is set to recover tax that HMRC claims contractors avoided paying by choosing to pay part of their salary in the form of a non-taxable loan when working on assignments between December 2010 and 5 April. 2019.
Loan-based remuneration schemes are said to have proliferated in the wake of the introduction of IR35 reforms at the turn of the millennium, usually marketed through non-compliant umbrella companies as an HMRC-approved way for contractors to take their homes. Pay by artificially reducing their employment tax liability.
Thousands of IT contractors who took part in the scheme were handed six-figure tax bills from HMRC in the nine years to 5 April 2019, which reportedly led to mass bankruptcies and contributed to at least nine suicides.
Responding to requests for a policy review, Truss said: “The way the whole situation has been handled has been very poor in my view and we will look at what we can do about that particular issue and we will. Make sure that, as part of our tax review, we look at IR35 and its Looking at the impact because again, self-employed people don’t get the same benefits as people who are salaried. Earn, so we should do what we can to help those people.”
Steve Packham, spokesman for the Loan Charges Action Group, welcomed the Trust’s acknowledgment of how difficult the policy had made life for those within its scope.
“He is right to be horrified at the nine suicides and is also right that the handling of the whole thing by HMRC and the Treasury was very poor,” he said. “Now is the time for a proper independent review of the whole matter and, most importantly, a fair solution to end the nightmare of thousands of families.
“We call on Conservative MPs to go back on the loan charge pledge and for the Prime Minister to review and resolve the loan charge scandal before more lives are lost.”