Treasury sees sense... IR35

It has happened. The voices of 4.5m self-employed people were finally heard. After having been blanked for years and ignored during the COVID crisis despite contributing around ￡300bn to the economy.

The good news is that the 2017 and 2021 reforms to the IR35 off-payroll working rules will be repealed from 6 April 2023. From this date, workers providing their services via an intermediary will be responsible for determining their employment status and paying the appropriate amount of tax and NIC

HM Treasury has in effect acknowledged that the 2017 and 2021 Off-Payroll legislation (that built on the existing IR35 legislation), were not working, were a drain on growth and development of just the freelance economy but the wider economy.

Now the question is how long it will take for the freelance economy to recover and for those effects to be felt in the wider economy.

But make no mistake, the Off-Payroll reforms did terrible damage to the freelance economy not just financially but restricted the movement of skills and expertise as led to workers taking retirement or remaining within full time employment. The movement of skills is essential to a successful economy.

Larger businesses who used contractor have no doubt expressed concerns to government about the ticking timebomb of employment rights as they have taxed workers as employees but not given them employment rights. At the recent bank holiday contractors caught by IR35 and taxed as employees weren’t given paid holiday whereas their counterparts who were under employment contracts and paying the same tax were.

Last year’s Labour conference supported an undertaking to oppose taxing workers as employees without giving them rights and shadow small business minister Bill Esterson MP has been a long term critic of the tax.

Community Union, IPSE, FSB, the Musicians’ Union, locum doctor and pharmacist groups and trade unions and business trade associations across the economy have opposed IR35 and its disruptive effect on the economy and described the measures as a 'mess' and badly thought out and badly implemented.

The budget has made other changes, but these shouldn’t be conflated with those. This isn’t a tax cut or a tax break for contractors but the recognition that a set of draconian measure that were unbalanced and bureaucratic were stifling the growth of the economy.

Next… having removed the negative off-payroll measures that has stifled contracting and the freelance economy the Government now needs to put in positive measures to bolster and support freelancers and revisit the Taylor Report and issues around employment status which still remain at the heart of the issue.

But for today, freelancing may still be viable, whether there is a wider economy to work in is another question.

Philip Ross was one of the founding directors of IPSE in 1999. He is a member of the self-employment committee for Community Union and vice-chair of Labour Business.

This article written in a personal capacity