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Liz Truss' proposed IR35 review branded insufficient

Conservative leadership candidate Liz Truss this week pledged to review IR35 regulations if she becomes prime minister, but critics have said it needs complete reform.

IR35 tax regulations came into effect in April 2021 and saw employers become responsible for assessing workers' employment status, and therefore handling all tax and national insurance (NI) contributions for self-employed contractors and agency workers.

Since the introduction, the UK has seen a rise in the use of umbrella companies which take over the administrative burden of IR35, but questions have been raised about the viability and legality of some umbrella firms.

Current IR35 regulations:

IR35: off-payroll one year on

How HR can make the most of the new IR35 rules

IR35 and zero-rights employment continues

Speaking to The Sun, Truss proposed an IR35 review that accounts for the fact self-employed workers are not entitled to some of the rights of being a full-time employee, such as paid holiday. 

Dave Chaplin, CEO of tax compliance firm IR35 Shield, however has said a simple review would not be strong enough action.

He said: “Whilst it is good to hear that Liz Truss intends to focus on IR35 as part of her vow to help small businesses should she become our next prime minister, my message to her is loud and clear: we don’t need another review, we need action.

"The so-called reforms are a flawed botch and have simply served to strangle contractors and those businesses that hire them. IR35 is an iron shackle, impeding flexible workers who can help deliver growth just when the UK economy and UK plc need them."

HMRC lost a major IR35 case in the Court of Appeal in April 2022, which proved significant in determining whether freelancers were considered part of IR35 rules.

Chaplin added that the current IR35 regulations should be scrapped and replaced with a system that better suits the needs of workers.

He added: "The time to act is now. Over the last 20+ years, there has been considerable misjudged and damaging legislation heaped on the contracting sector and the sensible option would be to go back to the drawing board and design a fair tax system that works fairly for everybody – let’s fix it or ditch it."