With the general election looming and main parties vying to get ahead in the polls, IR35 has emerged as a bargaining chip late in the game. It appears that Liberal Democrat, Labour, and Conservative politicians have finally realised that the 4.84 million self-employed people (that’s 15% of the UK population) could well swing a close campaign, and that promising to review one of the biggest issues concerning contractors is the best way to coup that considerable demographic.
So, who’s promised what so far? And is it just lip service, or could contractors finally be rid of the off-payroll rules? If you’re not entirely sure what IR35 is, we’ve got some handy guides to help you navigate this particularly insidious piece of tax legislation.
Liberal Democrats were first to include IR35 in manifesto
Although Sajid Javid made the biggest waves when it comes to a possible review of the off-payroll rules after his appearance on BBC 4’s Moneybox (more on that later), the Lib Dems were the first to propose a change to IR35. They’re also, interestingly, still one of only two parties (the other being the SNP) to actually include those changes in their manifesto as a nailed-down ‘promise’. Could they actually mean to make good on their IR35 pledge post-election?
Despite stopping short of saying they would scrap the IR35 rules altogether, the Lib Dems’ Ed Davey agreed that a wider rollout would ‘undermine the flexibility of self-employed people’ during IPSE's 2019 General Election Hustings.
"IR35 is a very difficult and sensitive tool, and by putting it in the hands of the larger companies, be it public sector or private sector, it's had a whole set of unintended consequences," he said. "That must be reviewed. We need to think in all tax policy about the smaller people, the smaller businesses, self-employed.”
As well as committing themselves to an IR35 review, the Liberal Democrats also spoke out about another Machiavellian piece of tax legislation called the Loan Charge during hustings hosted by the ICAEW back in November. The party stated that ‘the retrospective nature of the Loan Charge should be abolished, and HMRC needs to start behaving in a lawful way. This all revolves around the wider issue of IR35.’ This would be welcomed by the many contractors and their families who have been affected by this particular issue; while the Loan Charge Action Group, including the All-Party Parliamentary Group, has been fighting tooth and nail against the legislation, it desperately needs wider governmental attention to prevent any further suicides.
Labour follow suit with pledge to scrap IR35, go back on said pledge…and then change their minds again
The Labour party were quick to follow suit to try and capture the votes of the self-employed with their own IR35 review pledge. IR35 was the brainchild of Gordon Brown’s government, but the current public sector iteration and the reforms due to hit the private sector in April 2020 are of Tory making. Could it be that Labour genuinely want to see the off-payroll rules gone for the sake of contractors across the UK, or was it a case of keeping up with the Lib Dems while taking a swipe at their biggest opposition?
Bill Esterson said Labour would halt the IR35 reforms being rolled out to the private sector should they come into power, also during the debate organised by IPSE. He said that ‘we absolutely can’t see it rolled out into the private sector the way things are at the moment’ after acknowledging that the rules had resulted in a noticeable reduction in the availability of skilled workers in the NHS and elsewhere. He then confirmed that the stance was party policy in a follow-up tweet post-event.
“We need to support the self-employed in this country,” Esterson said. “We need to make sure that our tax system is diverse so that it matches the needs of being self-employed and is also consistent with the risk that is taken.”
This hard-line stance on the off-payroll rules somewhat softened after the pledge was made; after Esterson deleted the tweet and anything to do with the initial promise to scrap the legislation altogether, Labour promised instead to ‘a review of the current plan to extend the IR35 reforms to the private sector’. Just today, however, Labour politician Rebecca Long-Bailey seemingly confirmed that the party now plans to once again scrap the legislation entirely, as reported by Contractor Calculator.
Regardless of the will-they-won’t-they ‘scrapping’ of IR35, the Labour manifesto is missing any mention of tackling the off-payroll rules. It does, however, promise to deliver ‘the biggest ever crackdown on tax avoidance’ should they be elected - two sentiments that will almost certainly find it hard to coexist in practice.
Conservatives finish last in the IR35 review race
The Tories, traditionally known as the ‘business party’, disappointed many contractors with their deafening silence on IR35, especially after the deluge of other major party politicians pledging to review the legislation. They finally caught on, however, and used BBC Radio 4’s Moneybox as a stage to make their own promises about the off-payroll rules. Genuine policy or grab for votes? Best to take it with a pinch of salt.
Chancellor Sajid Javid said the anticipated private sector IR35 changes would be reviewed should the Tories retain their government, and that he wanted to ensure the reforms were ‘appropriate’ before being rolled out. Despite reassuring listeners that the Conservatives were batting for the self-employed, Javid didn’t sound too committed when pressed for an answer on if the Tories would consider scrapping the off-payroll rules altogether. He instead asserted that the legislation would be included as part of a ‘wider investigation’, as promised in the Tory manifesto, that will ‘look into how new policies could help freelancers’.
“One thing in particular I want to look at is the proposed changes to IR35, these are the tax rules that apply to many self-employed people, particularly those that work as consultants,” Javid said while speaking to Moneybox host Paul Lewis. “I want to make sure that the proposed changes are right to take forward so we will be having a review of those proposals and changes as part of our wider self-employment review.”
However, Javid got some of his IR35 facts a little fuzzy, referring to it as a ‘new’ legislation (while the public sector reform was introduced in 2017, IR35 has been around since 2000) and being seemingly unfamiliar with who exactly the reforms – which are his own party’s addition to the legislation – affect. This lack of understanding around the off-payroll rules makes the promise of a genuine, thorough legislative review ring somewhat hollow, but you can make your own mind up by listening to the full broadcast here.
Can any major UK political party be trusted when it comes to IR35?
While the fact that IR35 is finally being discussed as a major point of debate shouldn’t be overlooked, there are a few things that suggest contractors should not take these pledges as gospel. Hyperbole is standard rhetoric on the leadup to an election, and often outright lies are fed to the public in an attempt to cement as many votes as possible. The promise of a review of the IR35 reform could well just be another grab for votes.
These promised IR35 legislative reviews, if genuine, will have to be turned around at breakneck speed in order to be completed before the 6th April 2020 rollout date, which has been set since 2018. While it’s certainly possible, IR35 has undergone many, many changes since it was first introduced and yet another review probably won’t change much.
The politicians making these ambiguous promises have also overlooked the potential backlash contractors could feel from their indecisiveness. Preparing for the IR35 reform calls for planning, communication, and a fair amount of time if the correct approach is taken; a change to the legislation this close to the deadline could not only waste business owners’ money but could cause mass blanketing of status determinations as seen in the last-minute 2017 public sector reform. Financial-sector corporations have already beaten a path for rash reactions to the legislation that larger risk-averse companies wouldn’t find difficult to follow.
Larsen Howie offers a range of contract and working practices reviews – you can find out which option would be best for you here. We also offer IR35 investigation insurance with representation from our Head of Tax, IR35 specialist and Jensal Software defence Andy Vessey ATT, should it go to tribunal.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.