Britain’s self-employed are stuck in a nightmare – Sunak must go one step further

Rishi Sunak
Rishi Sunak rightly hailed Britain's self-employed as the risk-takers and entrepreneurs in our economy - Benjamin Cremel/AFP

I’ll admit – abolishing National Insurance for the self-employed was not on my election bingo card.

It’s an extraordinary offer to millions of self-employed people whom Rishi Sunak rightly hailed as the risk-takers and entrepreneurs in our economy as he made the manifesto pledge. After a bruising economic period, it’s just what they needed.

But it’s fair to say that hundreds of thousands more freelancers will be wondering why they’ve been left out of the prime minister’s plan to boost the sector. If his aim is to fully embrace the self-employed, he’ll need to go one step further. That means scrapping the IR35 tax reforms.

IR35 is a highly disputed area of the tax system, and it’s one that both Labour and the Conservatives have had a hand in creating. Introduced by then-chancellor Gordon Brown, the Conservatives went on to reform these rules in 2017 and 2021 – much to the detriment of limited company freelancers and their clients.

In sum, it flipped the responsibility of determining the tax status of freelancers from the contractor to the company.

Following a series of high profile cases involving well-known TV personalities, many companies, notably banks, took the decision to limit the number of freelancers they took on or turned them away altogether for fear of falling foul of the rules. And the impact has been severe.

Our research found that within the first year of the 2021 reforms, one in five contractors had given up on freelancing to become an employee.

For those who have stuck it out, the new rules are a constant barrier to securing work; more than half of contractors have had to reject work in the past year due to IR35-related disputes with a client. And a shocking one in 10 contractors are out of work today as a direct result of the reforms’ impact. In short, it’s a nightmare for business.

Liz Truss and Kwasi Kwarteng understood this. Overshadowed by the mini-Budget’s more eye-catching measures were plans to repeal the IR35 reforms – also known as the “off-payroll working rules” – citing the “unnecessary complexity and cost” they bring to freelancers and hirers alike.

As we all know, the mini-Budget didn’t last long – but if there was one measure that deserved to outlast Jeremy Hunt’s reversal of Kwarteng’s growth plan, it was this one.

As it stands today, IR35 makes working with freelancers unnecessarily risky for hirers. They watch with trepidation as HMRC drags media personalities through the courts for years on end and, understandably, conclude that it’s not worth the hassle.

A common alternative is to require freelancers to adopt a form of quasi employment with an umbrella company – a sector which itself remains plagued by bad actors and in need of regulation.

The self-employed need to be freed from the nightmare of IR35.

It’s hugely encouraging that Rishi Sunak has, at the last minute, shown that he recognises the unique value our self-employed sector brings to the economy. He now needs to ensure that his bold appeal to the self-employed doesn’t fall short of its potential to truly transform the fortunes of those who strike out on their own.

Andrew Chamberlain is director of policy at The Association of Independent Professionals and the Self-Employed (IPSE) - Briain’s only not-for-profit association dedicated to the self-employed.