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Liz Truss Promises To Review IR35

When you are fighting in the race for Prime Minister like Liz Truss, you make many promises to all kinds of people, including a review on IR35.

Well, it is interesting that this has been coming out recently. Liz Truss is already thinking about the different groups she can appeal to. Speaking to The Sun this week she discussed IR35 and how she feels that the changes of April 2021 disadvantage the self-employed.

Surprise, surprise that she chooses to bash something brought about under her rival Rishi Sunak. Yet, she is not wrong. It is undoubtedly on the complaints list of contractors and businesses alike. It is also a topic constantly in the news these days so perhaps bringing down the reputation of HMRC.

Rishi Sunak and Liz Truss have been all over the UK calling for votes. It is interesting that Liz Truss has chosen to identify IR35 specifically given the perceived make-up of Tory membership she is appealing to. Yet this is a good thing for contractors who have been suffering under new changes.

From being forced to work with specific umbrella companies to being told all contractors are employees by certain firms, the changes have been far reaching. They are being interpreted in many different ways.

It seems strange that a policy like this is so woolly that it is businesses implement it in so many ways.

Whoever gets into power only needs to see how IR35 is operating on the ground. This comes hand in hand with waiting on a review of IR35 which one can only imagine will be damning. Really, whichever of them it is, should not stand by it.

Rishi Sunak's on IR35

Yes, Rishi Sunak was involved in implementing it but surely anyone can see it is not working as it was the original intention. Perhaps if there was a fully reliable tool to make IR35 decisions that businesses could stand by it would be different. Yet CEST is not that tool and there is no defence for any organisation that wrongly assesses IR35 in the eyes of HMRC.

It is easy to understand why some apply a broad brush to contractors as they are afraid. Yet all this does, every time, is mean contractors are losing out.

Many individuals within the government and the Conservative Party have said over time how important contractors are. They boost businesses and provide an essential service. Yet IR35 among issues such as Covid and Brexit have led to contractors swapping for permanent jobs.

Others have left the country or gone to find alternative sources of work. In an area such as IT, there is a shortage of contractors available to do work at the moment. With the pressures of issues like IR35, is it any wonder that contractors have been put off.

Whoever wins the leadership contest, let us hope that they take the time to review IR35. The more people earning, the more for the HMRC coffers whether inside or outside IR35. If it is Liz Truss, let us hope she lives up to the pledges she made in her interview.

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An Update on HS2’s Pot for Workers Wrongly Determined Through IR35

We recently gave a report about HS2 called Are Hidden Employees Costing HMRC £1.4 Billion?

It shows in their annual accounts that they have a pot put aside for wrongful IR35 determinations. As they are not currently facing an investigation from HMRC, it was presumed this was a ‘rainy day’ or ‘just in case’ kind of pot. Yet it seems like it may not be quite as all-encompassing as that.

So, as we are fully aware, when a medium or large size business now works with a contractor, they need to decide whether they fall inside IR35 and are completing work as an employee, or outside IR35 and completing work as a contractor. Although this sounds like a simple distinction, it is in fact quite complex. HS2 as a larger business, is responsible for completing IR35 determinations.

You may recall that, over 90% of those working on HS2 are employees. Despite the nature of the work, very few are considered contractors. You may be forgiven for thinking this perhaps should be higher. So, it seems even stranger that close to £10 million is being held back for HMRC non-compliance rulings.

Well believe it or not, this is a little different to the debts being wracked up by other government departments. That is the £270 million under demand by HMRC for all the wrong decisions being made by their departments. While it seemed the same initially, there is actually a specific reason that the money is being kept by HS2.

HS2 has been working with a range of organisations to get their staff on board. Some are them are third party agents. This is a regular endeavour and could cover say umbrella companies or other agents.

Many businesses use organisations these days to take on staff.

In fact, some refuse to take on contractors unless they come through an umbrella company. Others even demand that specific umbrella companies are used.

Well, they have put their nearly £10 million aside as they did not make the determinations themselves. They have put it aside in case these third-party organisations got it wrong. So, although we thought they were just being risk-averse originally, they are in fact just being – yes, still completely risk averse.

Although it seems different, it is in fact much the same scenario.

HS2 cannot be the only highly risk averse business out there in terms of IR35. It can only be the tip of the iceberg in terms of businesses so worried about HMRC they take extreme measures. Is this what was envisaged when the changes to IR35 were first imagined?

If only the time could be taken to investigate the real impact on both businesses and contractors. It can only be imagined how much time and money is going to waste on this matter by businesses. Equally, how much stress and loss of earnings it means for genuine contractors simply trying to do their job. There is a bigger issue overall that HS2 are revealing.

Let’s hope HMRC take note of this preposterous situation.