Contractor sector backs Liz Truss as new prime minister, but stays sceptical of IR35 review

Liz Truss won the Conservative Party leadership contest yesterday to become the UK’s next prime minister, effective from today.

For contractors, Ms Truss’s victory over her rival former chancellor Rishi Sunak means No 10 is to be run by a qualified management accountant who has pledged to review IR35.

In an assertive acceptance speech in Downing Street repeating “we will deliver” -- a potential snipe at outgoing PM Boris Johnson, Ms Truss vowed to achieve “what we promised in 2019”.

So on top of her campaign pledge to look at IR35, and at the loan charge, a reversal of Mr Sunak’s Tory manifesto-breaking hike in National Insurance Contributions is now expected.

'Empty promise'

While the NICs increase reversal has been mooted for November rather than at this month’s Emergency Budget 2022, there is less certainty over Ms Truss’s IR35 review.

In fact, a poll of more than 470 contractors shows that 94 per cent of limited company workers believe that the Tory MP’s vow to probe the off-payroll rules is an “empty promise.”

“Truss has the opportunity to start winning back the support of the self-employed who have…lost faith in the Conservatives,” says IR35 contract reviewer Qdos, which ran the poll.

“To seize [it, she] must deliver on her promises. This starts with IR35…which [is] flawed and creates big problems, not just for contractors but also for the [organisations] engaging them.”

'Lip service'

Like the polled contractors, a former tax inspector Carolyn Walsh, boss of CWC Solutions, is sceptical that the HMRC rules of April 2017 and April 2021 are going anywhere fast.

Yesterday Ms Walsh told ContractorUK: “Legislation known as IR35 was down to HMRC, but IR35 reform, first in the public sector then in the private, was entirely government-driven.

“I think HMRC knew it couldn’t make a success of it from the outset. So to me, a PM promising an IR35 review is just lip service and should be nothing to get excited about.”

Online, contractors are already talking of the ‘Truss IR35 review’ but the probe will be closer to Kwasi Kwarteng, the business secretary, who is set to be appointed chancellor.

'Lower taxes'

Truss gave clues yesterday on what Mr Kwarteng will do, like “lower taxes,” which she has committed to beyond NICs, such as by cancelling 2023’s planned rise in corporation tax.

But alluding to Russia, the foreign secretary also said that as PM, she will tackle the “energy crisis” by “dealing with people’s energy bills,” plus “long term issues” with energy supply.

It is such issues affecting the many, rather than IR35 which affects the comparatively few, which hurts the chances of a Truss-led government probing IR35 robustly or rapidly.

'Loan charge and IR35 reviews have stiff competition'

“Congratulations to Ms Truss, but she must have landed the most difficult job that anyone anywhere could face”, Kate Cottrell of status firm Bauer & Cottrell began to ContractorUK.

“With her many promises like lower taxes, huge growth… [and fixing] issues facing individuals and firms, her promised IR35 and loan charge reviews have stiff competition.

“So it’s very hard to see that the plight of contractors will be addressed any time soon, if at all. There’s always hope but pressing issues mean sadly IR35 will be bottom of the long list.”

'Little achieved in IR35's 22-year history'

Andy Vessey, head of tax at Kingsbridge echoed: “The new PM has bigger issues to tackle so I doubt that an IR35 review will be a priority and will get pushed to the back of the queue”.

“[Therefore] I am not expecting a radical [review] outcome in the near or distant future given that, during its 22-year history, little has been achieved in making IR35 simpler [or] fairer”.

Indeed, Ms Truss could even wriggle out of reviewing IR35 by saying ‘the civil service has advised me that actually it is perfect,’ cautioned a self-described ‘cynic’ on LinkedIn.

'Other emergencies'

A PSC director on the same thread said IR35 won’t be reviewed with any “effort or urgency,” and officials will likely blame “other emergencies” as requiring the new PM’s attention.

Meanwhile, rather than address the IR35 review (perhaps as they too regard it as an outside bet), some contractor accountants are simply hoping Ms Truss cuts their spiralling energy bills.

“Immediate support in terms of energy subsidies is urgent,” NumberMill’s managing director Louise Rayner told ContractorUK. “And not only for individuals but [for us] businesses too.”

'Truss will do a Sunak on energy bills'

Ahead of an imminent announcement by Ms Truss on energy bills (rumoured to be a bold freeze for all households and enterprises), another adviser expects a copy of the offerings from defeated Mr Sunak.

“She will simply do a re-run of the covid support measures, [and] give loans to businesses and free money to households,” posted the accountant, Richard Grant of Chart Accountancy.

Mr Grant added: “Nothing to resolve the underlying problem [will be announced by Ms Truss]. In fact, she will make it much worse by massively increasing the national debt.”

Hoping prime minister Truss will tackle underlying problems of a different kind is Andy Chamberlain, of the Association of Independent Professionals and the Self-Employed (IPSE).

“Liz Truss comes to No 10 at a difficult time for the country. Among her other challenges is the urgent need to repair the government’s relationship with one of the most innovative and dynamic parts of the UK economy -- the self-employed.”

'Harder to work for yourself through a limited company'

Policy director at IPSE, Mr Chamberlain continued last night in a statement to ContractorUK:

“Since the Conservatives came to power in 2010, it has become harder, not easier, to work for yourself – particularly if you choose to incorporate your business and work through a limited company.”

The association added that while IR35 “isn’t the only problem” facing contractors, it is the “big one,” and has “got worse” since the April 2017/21 changes were introduced.

'Tax reversals would be good'

Often asked about IR35 by PSCs, NumberMill’s Ms Rayner says that if Mr Truss’s vow yesterday to bolster “personal responsibility” results in policy, it should be around risk-takers.

“I’d like entrepreneurs and SMEs encouraged, as this will grow the economy. So the NI and corporation tax reversals would be good, but they need to be funded,” the accountant said.

“And wouldn’t it also be great if Truss reversed IR35 [reform]. Also, [why not] bring back travel and subsistence expenses, to make it great to be an umbrella contractor once again!?”

'Contracting isn't going to go back to the old days under Truss'

However a prime minister facing an economic deficit “isn’t going to go back to the old days when any agency worker, who was treated as a contractor, got paid with no employer contribution to NI, workplace pension or apprenticeship levy [deductions].”

Of her assessment -- that Truss yesterday pledging her government to champion Conservative values probably won’t go far enough for contractors, CWC Solutions’ Ms Walsh explained:

“The only thing we can realistically hope for is more [HMRC and IR35-related] guidance for the hirers of freelance workforce, in order that hirers feel more confident about the rules.

Also the boss of ICAEW member firm Andraste Accounting, Ms Walsh added: “Confidence is key. But I’m not sure UK companies have an awful lot to be confident about these days. So Truss absolutely has her work cut out, and that’s before she even gets anywhere near IR35.”

'Need actions to back up her words'

More optimistic, IPSE’s Mr Chamberlain reflected: “We are pleased the prime minister has already committed to reviewing IR35 and tackling ‘Treasury orthodoxy.’ We now need to see action to back up those welcome words.”

Chris James, head of limited company accounting at Workwell agrees. “Nothing decisive will happen quickly on this [IR35], but let's hope some action follows the promises in due course.”

Mr James added: “It would be good for UK business generally if a far-sighted, meaningful plan promoting freelancing, small business and entrepreneurship materialised. I'd love to see one.”