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What the new employment status guidelines mean for self-employed workers

The government has published new guidance on employment status to help businesses and individuals better understand the current system. It’s helpful, but it only considers status for employment rights, not tax and crucially, it doesn’t actually change anything – we still have the same, impenetrable status rules and the government isn’t going to do anything about it.

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IPSE
10 Aug 2022
3 minutes
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After four long years, the government finally responded to its own consultation on Employment Status late last month. The consultation followed the Matthew Taylor Review on Employment Practices in the Modern Economy.

Taylor made a series of positive recommendations - including clarifying employment status rules - in his review, which the government at the time accepted and committed to implementing.  Four years of silence followed, and now the government has decided not to address employment status, arguing that now is not the right time to bring forward changes to one of the most important issues facing self-employed workers and those that wish to hire them.

Instead, it has published the new guidance. It covers the main criteria which will be familiar to anyone who is concerned with IR35 – personal service, control and mutuality of obligation. It also highlights supplementary considerations including:

  • The ability to make a financial loss or a profit
  • The negotiation of fees
  • The use of their own money to buy business assets and equipment

While the guidance is somewhat helpful, it doesn’t address the underlining problems surrounding the rules. We will still be confused about whether there is a mutuality of obligation or not, and most importantly – it will do nothing whatsoever to help supply chains which are struggling with IR35. In fact, it quite specifically states that the guidance should not be used to determine tax status.

The issues with employment status rules

While some outside of self-employment may overlook employment status decisions, confusion around the rules has crippled the sector in recent years. Since the implementation of IR35 in the private sector, medium and large-sized hiring organisations have been put in charge of grappling with the opaque status rules. Those deliberations determine whether an engagement is inside or outside IR35.

The lack of clarity around employment status rules has resulted in risk-averse hirers incorrectly determining IR35 applies in thousands of cases. It has also resulted in four in five (80%) freelancers inside IR35 experiencing a dramatic fall in their quarterly earnings. Moreover, since the changes to IR35, a significant number have left self-employment altogether to avoid the new rules and employment status regulations.

How to solve the issue

A straightforward solution to this is erasing IR35 rules altogether. However, if the government is not yet prepared to make these changes, an alternative approach would be to introduce clearer criteria for determining status. This will ensure that confusing rules do not disadvantage contractors and that the test is more digestible and easier for hirers to apply.

The government is long overdue in solving employment status decisions. Self-employed workers can’t wait another four years and they need either Rishi Sunak or Liz Truss to commit to solving this issue as Prime Minister. If not, they will be harming one of the most innovative and dynamic parts of the UK economy - a sector that is essential to the growth of thousands of businesses across the country.

If you are interested in hearing more about the government’s response to the Taylor Review, then you should attend our upcoming webinar on Thursday. The webinar hosted by IPSE’s Director of Policy Andy Chamberlain as well as myself and our Senior Policy and Communications Advisor, Fred Hicks will cover what the new guidelines mean for self-employed workers.

The latest schism within the Conservative Party

On the one hand, you have Rishi Sunak’s ‘pragmatic’ economic approach, grounded in a desire for stability. On the other, you have a growing caucus of Conservative MPs supportive of Liz Truss’s policies to bring about turbocharged growth and lower the tax burden.

Let’s not forget that Conservative members favoured the Truss approach. Rishi Sunak has the unenviable task of trying to appease the very base of his party that didn’t want him only one year ago. It’s this split within the party that is receiving column inches and captivating party members. But it also does nothing to endear the UK’s smallest business owners, who will no doubt be left frustrated by an apparent dearth of ideas to address many of the issues they face.

What happened at the Party Conference?

After days of speculation surrounding HS2, the Conference finally kicked into life with the re-emergence of Liz Truss at a packed-out event held by the Conservative Growth Group. This is a group of MPs – believed to be as many as 60 – that want to see an end to the current fiscal ‘status quo’ by reducing taxes and boosting growth with measures such as scrapping IR35.

At the event, prominent figures such as Priti Patel and Jacob Rees-Mogg stood alongside Liz Truss in calling for radical change to taxation and a desire to boost the UK’s economic fortunes.

But these sentiments are in sharp contrast to the main event; Rishi Sunak’s first conference speech since becoming leader.

Sunak passionately claimed that the Conservatives “will always be the party of enterprise, the party of small business,” although many of the UK’s 4.3 million self-employed will disagree.

Many will point to the imposition of the IR35 reforms – forcing a large proportion into an unregulated umbrella company market – as well as constant raids on dividend income and increases to corporation tax. For others, it will be inaction on late payment, training and skills, or gaps in support during the pandemic. After 13 years of Conservative government, the self-employed arguably feel more marginalised by public policy than ever before.

Sunak’s use of the phrase “it’s time for change” was also particularly interesting. It's curious that a party that has been in government since 2010 is advocating change. It's also curious that a current Prime Minister, with the power to bring about such change, offered no real insight into what this change would even entail.

Whilst we had some detail given on the plans to outlaw smoking and an overhaul of A-levels, there was also a glaring gap in his speech: a plan to support businesses and encourage growth. This would suggest that the PM is actually content with the current economic status quo and at odds with his assertion on bringing about change.

It’s official, the self-employed are deserting the Conservatives

It will therefore come as no surprise that the self-employed are now looking away from the Conservatives.

This sector is often considered to be a naturally Conservative electoral bloc, tending to favour pro-business and free-market policies. Therefore, the latest polling from the Centre for Economic Performance is particularly pertinent, revealing that just 19% of the self-employed intend to vote for the Conservatives at the next election. When the polling was carried out at the same time last year, this figure was 30%.

Instead, these findings now indicate that 36% of the self-employed intend to vote for Labour at the 2024 election, an increase on 34% from last year. The self-employed are also now slightly more likely to vote for the Liberal Democrats, unsure of their voting intentions or not planning to vote.

Ultimately, the polling provides a bleak snapshot for the Conservatives.

Perhaps it’s time they finally recognise the impressive economic contribution and entrepreneurial drive of the sector and embrace the self-employed in public policy. This sector is not only vital to the UK’s economic fortunes but also represents a significant voting bloc at the next election.

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