As the new Conservative party leader takes the reigns, the country will be waiting to see which of the tax cuts and other various legislative ideas promised during the election are put into practice.
Beyond the ideas touted during the leadership race, what can the next Government do to support the flexible workforce?
IR35 isn’t going anywhere
There has been speculation that a new leadership could see the latest changes to the IR35 rules scrapped. The leadership election brought IR35 back into the media, with IR35 critic, MP David Davis, writing in The Telegraph that “The Treasury’s IR35 policy is causing huge damage to small businesses in every part of the UK. That must be shelved”.
Liz Truss has also voiced her concerns on the IR35 regulations, stating the tax rules are unfair as they force genuinely self-employed tradesmen to pay too much. She said “The changes that have been made to IR35 are all about trying to treat the self-employed the same as big business”
“But the fact is, if you’re self-employed, you don’t get the same benefits as being in a big company. You don’t get paid holidays, you didn’t get those benefits. So the tax system should reflect that more.”However, the off payroll working rules have been in place for over a year now, so in my opinion it’s highly unlikely they will be removed in a hurry.
Even if they are, the process will take time. So instead of hoping changes are implemented in the future, time and effort should be focused on ensuring that businesses are complaint now, in line with the IR35 rules that are in play. This is particularly important for those in the oil and gas sector who rely on experience contractor talent to deliver projects.
In the event that the rules of the legislation were to be altered, businesses will still be held liable for any unpaid tax from the current period. Overlooking this risk could leave hirers and the supply chain at risk of investigation and hefty tax fines. HMRC has dedicated substantial resource to ensuring IR35 compliance is being followed and that parties responsible are paying reasonable care when assessing IR35 status determinations. So compliance now is key.
As contractors and end-hirers have discovered under the previous rules, it is essential to have robust and compliant solution in place and to be frequently reviewing these solutions to prevent surprise tax bills and fines further down the line. A compliant hirer will be able to offer roles outside IR35 – where appropriate – giving them access to the best expert independent talent.
Taylor Review
As the UK’s flexible workforce evolves, we can see that our tax and employment laws have not kept pace. Having a flexible workforce is crucial to many sectors, and in a wider perspective it could be a significant factor to contribute to our economic prospects as a county. Aside from IR35, there are a range of developments that the next Government could enforce that would benefit the flexible workforce as a whole.
The Taylor Review recommended many improvements for the flexible workforce, yet less than 10 of its recommendations have been implemented since it was published in 2017. This frustrating lack of action following the review’s findings was noted by the House of Lords committee that reviewed the impact of IR35, which recommended other findings to be implemented more fully.
One recommendation that would have a significant and lasting impact would be the codification of employment status and aligning this for both tax and employment rights purposes. This would see the existing tests on employment status, which are defined by case law, codified in prescriptive legislation with the aim of simplifying status determinations.
This would help to remove the complexity and uncertainty around IR35 that today results in some businesses taking a risk averse approach to try to be compliant. Removing barriers to working with contractors would transform businesses attitudes to flexible workforces, from a potential risk to an accessible resource that can be switched on as and when required.
A healthy economy needs a tax framework that enables access to flexible workforces for businesses, while valuing the vital contribution that genuine contractors make, to ensure that both parties can benefit and grow from their engagements.
Good Work Plan and Employment Bill
The Good Work Plan and Employment Bill both looked to implement several of the recommendations from the Taylor Review, such as making flexible working the default and introducing a new right for all workers to request a more predictable contract.
The introduction of a single enforcement body that would oversee and enforce workers’ rights and more resource for the Employment Agency Standards (EAS) Inspectorate could also help. This would combine existing bodies and expand its scope to include enforcement of statutory sick pay, holiday pay for vulnerable workers and regulation of umbrella companies – helping to reduce and mitigate risk within the hiring supply chain for businesses.
The next Government has a clear opportunity to support the growth and flexibility of the contingent workforce. By driving forward the recommendations of the Taylor Review and implementing positive changes to help standardise and regulate the recruitment supply chain, businesses can confidently access the flexible workforce to support their growth and that of the broader economy.
Matt Fryer is the managing director of Brookson Group, a People2.0 company.
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