IR35 – be careful what you wish for

Press reports last weekend suggested that if Liz Truss becomes the next Prime Minister, she will order a review of the current ‘IR35’ rules. This may be welcomed by many in recruitment as a means of addressing many of the well documented legal and practical problems, but could a review lead to an additional burden being placed on recruiters and hirers?

As reported in an interview with the Sun on Sunday, Liz Truss has committed to a review of IR35 if she becomes the next Prime Minister. The IR35 rules, as contained within Chapter 10 of part 2 ITEPA 2003 (‘IR35 Rules’), place an onus on public authority and medium and large businesses to assess the status of individuals performing services for them through PSCs and other intermediaries, with responsibility for accounting for tax and national insurance resting on either the client or the party in the chain who pays the PSC, often a recruitment business.

The IR35 Rules have given rise to many concerns over the years. The uncertainty and subjective nature of the tests, the CEST tool and, for those in recruitment, the risk of liability for decisions which they may have little or no involvement in, has created a challenging environment for all. A wholesale review would therefore be a welcome prospect on the face of it. However, be careful what you wish for. The comments made by Liz Truss do not focus on the burden on business but rather on the unfairness to the self-employed. One of the complaints of contractors in respect of the IR35 Rules is that they are being taxed like an employee but do not receive any corresponding employee type benefits, resulting in many choosing umbrella or PAYE rather than continuing to work through PSCs.

Liz Truss is quoted in the article as saying “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.”

If the review is planned to address the impact of IR35 on businesses, to assess where it is, and is not, working, and for alternatives to be considered, it may be welcomed. However, if the intention is to afford additional rights to contractors who fall inside IR35, then this would be a challenge for both recruitment businesses and contractors who may well find themselves shunned as a group going forwards.

For more on the pros and cons of contracting, and the issues around the rights and obligations related to the supply of agency workers, Lawspeed’s seminar on 24th January “agency worker supply – the rules and the risks” will cover the key topics – click here for more information and to book.

Theresa Mimnagh, Director at the recruitment and employment law specialist Lawspeed.

Lawspeed group corporate clients benefit from immediate up to date advice on staff engagement and related regulation; employment law, settlement terms and tribunal representation; employment status; client, IR35, PAYE, and umbrella contract templates; contract review/negotiation; self-employment and CIS contract templates; trade membership and government representation; audit and accreditation services and a state-of-the-art digital contract management platform.

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