As per Sir Robert Buckland (former Lord Chancellor):
The Summer offers an important opportunity for policy development ahead of next year’s General Election and Conservative manifesto. As the Prime Minister has rightly placed economic growth as one of his five priorities for this year, we need to raise our eyes to the horizon and plan for the Britain of 2029. The need to offer a way forward for self-employed people and small businesses is clear.
Last year’s Growth Plan has been consigned to political ignominy but, despite its flaws, it did contain some promising and sensible policies. One such policy was its proposal to “take the complexity out of the tax system” by reforming off-payroll working rules – more commonly – and controversially – known as IR35.
While nobly intended to tackle tax avoidance by contractors who work as employees, the legislation’s burdensome and complex nature mean it has become something of a Frankenstein’s monster. The deleterious impact it has had on dynamism, entrepreneurship, jobs, and growth means that there is no better time to slay it once and for all.
One of the most immediate problems with IR35 is the treatment of contractors as “disguised employees” for tax purposes. This discourages independent professionals from taking on projects and limits their ability to negotiate terms and work arrangements freely. The resulting lack of flexibility stifles innovation and prevents enterprising individuals from operating in a way that allows them to realise their full potential.
A double-edged sword, IR35 places a corresponding administrative and financial burden on businesses that engage with contractors. Companies are required to assess the employment status of each contractor they hire, often leading to costly investigations and legal disputes. The ambiguity of the rules makes it difficult for employers to make accurate determinations, strengthening the chokehold they have around businesses.
The cumulative effect of IR35 is that contract work has become less desirable, with some opting instead for permanent employment or work outside the United Kingdom. It is often said that diversity is a great strength, and in no context is this truer than in a modern economy like ours. The drying of the pool caused by IR35 has restricted the ability of British employers to fill crucial skill gaps, while we have lost out on homegrown talent to more competitive economies.
The reform of IR35 would not just add substance to the Prime Minister’s second priority of growing the economy, it could form a key plank of the Work and Pensions Secretary’s laudable mission of getting the economically inactive back to work. The scale of the challenge of bringing the once-employed back into the workforce post-Pandemic means the country simply cannot afford the barrier to enterprise that IR35 has become. Indeed, my role leading a review into how Government policy can boost the employment prospects of autistic people has impressed upon me the importance of empowering those with the ability to work to take the leap and do so.
With the next General Election fast approaching, another look at the off-payroll working rules would be an act of political expediency. The onerous regulations hit a natural constituency of the Conservative Party’s hardest, and its support will be crucial for Conservative prospects come next Autumn. As the Labour Party increasingly positions itself as the party of business, it would be foolish not to review IR35 as part of the party renewing its appeal to natural supporters.
It is time to reshape and rethink regulation surrounding the engagement of contractors, paving the way for a form of taxation that encourages dynamism and flexibility at a time when growth has never been needed more.
Tax does have to be taxing.
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