Contractors lack confidence in prime minister to follow through with promised IR35 review

The contractor community fears that new prime minister Liz Truss’s pledge to review the IR35 tax avoidance reforms is an “empty promise”, according to a poll by contracting authority Qdos.

Nearly 480 contractors took part in the reactionary poll, with 94% saying they felt the proffered IR35 review was an “empty promise”, while 5% said they had faith in Truss to deliver on her pledge.

Truss became prime minister on Tuesday 6 September 2022 and, during the Conservative Party leadership campaign that preceded her appointment, publicly committed on at least two occasions to undertake a review of the IR35 rules should she succeed Boris Johnson.

How the IR35 rules work in the public and private sectors has undergone reforms in recent years, with the government introducing changes that meant contractors were no longer allowed to decide for themselves how they should be taxed, based on the work they do and how it is performed.

Instead, responsibility for making those decisions has shifted onto the public and private sector organisations that engage contractors because of concerns raised by HM Revenue & Customs (HMRC) that letting contractors decide for themselves if their roles were in or out of scope of the IR35 rules was contributing to tax avoidance.

An inside-IR35 determination means contractors are considered to be employees for tax purposes, meaning they must pay the same tax as a permanent employee would. This means they are liable to make pay-as-you-earn (PAYE) and national insurance contributions (NICs), whereas an outside-IR35 determination means the contractor is taxed as an off-payroll worker.

One of the major and recurring criticisms of the rules is that although inside-IR35 contractors are taxed in the same way as employees, they are not entitled to receive the same workplace benefits, such as paid sick leave or holiday.

As a result, concerns have been raised by MPs and campaign groups that this is contributing to a rise in the number of zero-rights employees, while anecdotal accounts suggest the legislation has also contributed to a “brain drain” of IT contracting talent out of the UK.

Truss pledged to review the IR35 rules during a national newspaper interview published on 22 August, claiming that they were forcing genuinely self-employed people to pay too much tax, having made a similar pledge days before during a meetup of the Croydon branch of the Conservative Party on 18 August.

The pledge has been greeted with a fair degree of scepticism by contracting market stakeholders, who said previous reviews of the rules had done little to address the problems and impacts caused by IR35, and it seems the contractor community is similarly unconvinced that anything will change this time.

On this point, Qdos said the poll results are evidence of how much work Truss and the Conservative Party have ahead of them when it comes to regaining the trust of the contractor community.

“The fact that the overwhelming majority of people have next to no faith in the new prime minister just to review IR35, let alone fix this legislation’s fundamental flaws, says it all,” said Qdos CEO Seb Maley. “Contractors’ confidence in the government to do the right thing when it comes to IR35 is perhaps at an all-time low.

“I’m not surprised, though. There have been countless reviews, consultations and inquiries into IR35, few of which have resulted in change or progress. Even findings from the House of Lords have fallen on deaf ears, with the government ignoring many valid and constructive recommendations to make this complex legislation fairer. 

“Above all else, that so few people – whether contractors or businesses – believe that a review will be held at all provides food for thought for the new prime minister.”