IR35 U-turn: what freelancers need now (at least at the time of writing)
It’s been a whirlwind few weeks for freelance professionals in the UK. A little over a month ago, on September 23rd, there was a warmly-welcomed announcement that the controversial IR35 reforms would be scrapped – before that decision was itself scrapped just a few weeks later a week, on October 17th.
Chancellor, please relook at IR35 reform
But a reassessment of these reforms is still necessary. At Autumn Budget 2022 (formerly called the Medium-Term Fiscal Plan), or at least in the aftermath of new chancellor Jeremy Hunt’s incoming statement on November 17th, this reassessment needs to happen, if we are to unleash the power of the freelance revolution and maximise the contribution that the self-employed community can make to the British economy, writes YunoJuno founder and executive chairman Shib Mathew (pictured).
What happened at Mini-Budget 2022?
Let’s back up. At Mini-Budget 2022, the (then-new) chancellor Kwasi Kwarteng announced that the government would repeal the offf-payroll working reforms, that were introduced in the public sector on April 6th 2017 and extended to the private sector on April 6th 2021. These reforms, controversially and not intuitively at all, made most businesses that engage freelancers operating through their own limited company (or personal service company), responsible for these individuals’ IR35 status and associated taxes.
The planned rollback of the off-payroll reforms was warmly welcomed by many across the British freelance community, and it’s clear why. On our platform alone, which admittedly is the largest platform for premium freelancers in the UK, we’ve seen first-hand evidence of the disruption to freelancer engagement -- and growth -- caused by the two off-payroll frameworks.
A case of 'as you were'
However, less than a month after Kwarteng announced plans to scrap them, his swiftly appointed successor Mr Hunt announced that the IR35 reforms will no longer be repealed. Since the repeal was only due to apply from April 6th 2023 the chancellor’s veto effectively meant “as you were” to all affected -- freelancers, staffing agencies, and end-clients -- the corporate and public sector organisations using freelancers.
In spite of the confusion, backtracking, and overdue apology from the Liz Truss-led government -- which was known more for its calamity than its steady hand – or anything else for that matter, I believe freelancing deserves better. In fact, I’d go so far as to say that such self-employment still holds the key to unlock a better future of work.
The 2017 and 2021 off-payroll rules? They don't appear to be going anywhere
For now though, let’s be under no illusion. The IR35 reforms look like they will be remaining in place and hiring organisations and limited company freelancers will have to continue to navigate them. My view on these regulations has remained the same since they were introduced – they fail to truly understand the complexities of the freelance industry. Worse still, their much-criticised implementation by HMRC has added unnecessary friction to a labour market built on an agile, purposefully frictionless, approach to work.
Let me explain why. To mandate an employee-style test in tax legislation – whereby the engager must decide if the worker is effectively an employee (without knowing their circumstances such as their in-business credentials) – and for their organisation to risk tax penalties if they classify incorrectly, is simply ill-considered. Extending this model to the private sector in 2021, when the issues with the 2017 framework were mounting up and resolved, was just premature. The Public Accounts Committee, the National Audit Office and the House of Lords have all said as much.
Nitty gritty, burdens, but perhaps a silver lining?
Standing back from the nitty gritty of how they operate, the rules also go directly against the enormous opportunity presented by the fastest-growing segment of the labour market, by taking the decision of their own status away from them. Furthermore, the additional burden put onto hiring organisations – bear in mind they have never before had to assess their suppliers’ status -- stymied their own work, and growth, at a time when the entire economy desperately needed rocket-fuelled injections of talent wherever it could get it. That's something that Kwarteng recognised in his Mini-Budget speech, talking of "unnecessary complexity and cost."
However I believe there is still a silver lining in all this calamity.
Since IR35's original inception in 2000, the freelance economy has done what it does best: continued to adapt and evolve. Most recently, after the devastating effects of coronavirus, organisations had greater needs for agile workforces – to not only survive, but also to increase their competitive advantage, as their sectors began to bounce back. So organisations were already on this route of using more freelancers, and incorporating freelance-style work, such as flexible remote working ,into their workforces post-pandemic. It may not have been the situation anyone other than HMRC asked for, but the freelance economy continued to move forward when the 2021 framework was imposed. So freelancing and contracting under IR35 reform went ahead in the ‘new normal.' And looking at our bookings, it’s certainly here to stay.
What is within our control, and will continue...
From our platform’s perspective, while we cannot predict future government announcements on IR35 -- especially with how fast policies and personnel come and go (hence my headline), we can still predict our stance and approach to our freelance community. And that stance is that we will always endeavour to find ways to remove as much friction and compliance headaches as we can in sourcing and hiring skilled, niche, talented, freelancers for organisations with gaps in their workforce. Gaps that in some sectors show no sign of closing, and gaps that the much-needed reassessment of IR35 reforms ought to consider.
But back to now. Since the onus remains with the hiring organisation to appropriately determine the working practises ‘on the ground’ of a project and how the freelancer is engaged, we will continue to build the tools, network and workforce necessary to ensure both freelancers and clients understand their positions, and can get on with what’s really important -- the work and how people choose to perform it.
28th October 2022