To our incoming prime minister, here’s how the next government can champion the contractor workforce

With a change of prime minister officially due in the autumn, the Conservative Party leadership race has brought forward various legislative ideas to generate votes and favour, including tax cuts.

But, writes Matt Fryer, managing director of Brookson Group, a People2.0 company, what can the next government, and the new occupier of Number 10 Downing Street, actually do – rather than just say -- to support, and champion the flexible workforce?

IR35? It’s here to stay

Since the beginning of the Tory leadership election, there has been speculation that a new leader could see the latest changes to the IR35 rules scrapped, as David Davis MP has proposed. The new off-payroll working rules of April 2021 have been in place for over a year now, so in my view, it’s highly unlikely that they will be removed. And certainly not in any hurry.

Rather than speculate on future changes, it’s important to remember that the revised IR35 rules are already in play, so hirers need to make sure they are compliant now – and contractors should seek out compliant businesses and agencies that actively show a good understanding of these requirements.

Current IR35 liabilities from HMRC would still fall due

Even if the rules were to change in the future, businesses will still be held liable for any unpaid tax from the current period. This is a risk that hirers and the supply chain should not overlook or downplay. HMRC has resource dedicated to ensuring IR35 compliance and is actively investigating now, although it will be a while before we see the results of this activity play out in the courts.

As contractors discovered under the previous iteration of IR35, having robust and compliant processes and procedures in place today will prevent surprise tax bills and fines further down the line. But such a tried and tested solution also provides contractors with confidence in their hirer relationship. A compliant hirer will be able to offer roles outside IR35 – where appropriate – giving them access to the best expert independent talent.

Taylor Review

Aside from IR35, there are a range of reforms that the next government under our new PM’s leadership could introduce that would benefit contractors and the flexible workforce as a whole.

For example, it is widely recognised that our tax and employment laws have not kept pace with the UK’s rapidly evolving flexible workforce. It is also generally acknowledged that an optimised flexible workforce will be a significant factor contributing to our economic prospects as a country. 

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. The 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 Taylor recommendations to be implemented more fully.

Remove complexity, uncertainty

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 for contractors and their hirers.

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. 

Our message here to the new PM and their similarly incoming cabinet is this. A healthy economy needs a tax framework that enables access to flexible workforces for businesses, while valuing the vital contribution that genuine contractors make and the financial independence that they require -- in order to work effectively in this way.

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.

For contractors, this could see the introduction of a Single Enforcement Body that would oversee and enforce workers’ rights, and add resource to the Employment Agency Standards (EAS) Inspectorate. 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.

It is frustrating for everyone I speak to in the industry that these initiatives have been side-lined.

On that note, regulation of umbrella companies has been talked about with increasing urgency over the past year or so, with the latest well-publicised discrepancies and misunderstandings surrounding contractor holiday pay once again bringing the need for consistency to the fore.

Final thought

So what’s evident is that the next government has a clear opportunity to support the growth and flexibility of the contingent workforce. By looking to the Taylor Review, and pushing forward the Employment Bill, positive changes can be made for the benefit of the UK’s workforce and our broader economic prosperity. Just don’t get your hopes up about IR35 being wiped from the statute book, especially if these significant but not straightforward two big reform tickets gain traction in our new government’s first 100 days.

Profile picture for user Matt Fryer

Written by Matt Fryer

Matt is a Chartered Tax Advisor with 18 years' experience of advising on tax planning and compliance. Matt has been with Brookson since 2009, having previously worked for Big 4 accountants, KPMG and PwC. Matt’s primary role is to ensure that the services provided by the Brookson Group comply with relevant legislation and regulatory requirements. Matt is also a Board member of the FCSA, the UK's leading membership body dedicated to promoting supply chain compliance for the temporary labour market.

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