A Look at the Latest Developments
The complex and often contentious issue of IR35 has taken another turn, with renewed calls for a reversal of the policy. To fully comprehend the current situation and the potential for further changes, it is essential to delve into key chapters of the IR35 saga. This will provide insights into the reform’s underlying context and shed light on recent developments influencing the ongoing discussion.
In 2017, the government introduced IR35 reforms in the public sector, shifting the responsibility for determining the employment status of contractors from the individuals themselves to the organisations engaging their services. This shift aimed to address concerns about tax avoidance and ensure that contractors working like employees paid their fair share of taxes. In 2021, the reforms were extended to the private sector, further expanding the scope of the new rules.
Prime Minister Rishi Sunak introduced the legislation reforms to the private sector while he was acting Chancellor back in 2021. The reform was scheduled for repeal in September 2022 however, the plan was scrapped by the new Chancellor, Jeremy Hunt. Sunak claims to understand the challenges the legislation has created and that he is open to considering a reversal of the policy. Nevertheless, as of yet, the government has not made a decision on IR35, and it is unclear whether Sunak will ultimately support a reversal.
MP John Redwood is a vocal critic of the IR35 legislation and believes that it has damaged flexible working in the UK. He has called on Sunak to reverse the reform on multiple occasions and believes that it would be the “fair and logical thing to do.” Redwood is a long-time advocate for lower taxes and believes that cutting corporation tax would raise more money than the Treasury and OBR think.
The Latest in the IR35 Saga
Fast forward to November 2023, MP Redwood continues to strongly advocate the complete removal of IR35, emphasising its adverse impact on small businesses and the self-employed.
On November 9th, 2023, the first day back in the House of Commons, he expressed concerns about an 800,000 decline in self-employment figures in 2023 compared to February 2020. “Some of that is due to Covid, lockdowns or natural retirements, but some of it is due to the sharp change in the tax system called IR35… It is now very difficult for people to grow businesses, particularly if they want contracts from other businesses.” Redwood believes IR35 has deterred people from starting or expanding businesses, particularly affecting the emergence of a new generation of self-employed individuals; “…and that is mightily important because they (new gens) provide much of the flexibility in our economy and can also provide extra capacity.”
With the future of IR35 hanging in the balance, all eyes are on the government’s next move. While the arguments for and against repealing the policy remain strong, the ultimate decision will likely rest on the government’s assessment of the potential economic and tax implications. What should we expect to see in the next chapter of the IR35 saga? Only time will tell whether the reform will be retained, modified, or scrapped altogether.