IR35 has been ‘damaging’ to the self-employed says Sir John Redwood

IR35 has been ‘damaging’ to the self-employed says Sir John Redwood

The Chancellor must decide whether he will include IR35 in the Spring Budget

IR35 has been ‘damaging’ to the self-employed says Sir John Redwood

Sir John Redwood is “afraid” IR35 legislation has deterred people from wanting to become self-employed in the UK.

The IR35 off-payroll legislation has endured a turbulent time recently after it was revealed it would be repealed in the September statement, but only a month later the decision was reversed by the newly appointed chancellor, Jeremy Hunt.

Redwood is “afraid” that the current legislation has been “damaging” because it has “deterred” people from using self-employed contracts. He believes there must be some more “flexibility” within IR35.

Redwood has been a Conservative MP since 1987 and was previously Secretary of State for Wales as part of John Major’s government, acquiring the role in 1993. Recently, Redwood has been very vocal regarding what he believes should be included in the Spring Budget, with cuts to Corporation Tax and changes to IR35 a priority for him.

While he is not totally against the IR35 legislation, Redwood is adamant there must be some alterations to its current state.

“An employee does have one principal source of income from an employer that also offers sickness and holiday arrangements and various employee benefits, which you clearly don’t get if you’re  self-employed and have contracts with various companies.”

The Conservative MP for Wokingham says there are too many “unfair” examples of where it is becoming difficult to be established as self-employed for tax purposes.

“I want to make it easier [to be self-employed] because I think we need more self-employed, and we need to take some of the worries off the shoulders of self-employed who are wanting to spend their time winning clients and doing a good job rather than having to fend off too many tax inquiries,” Redwood notes.

HMRC’s IR35 report

HMRC and IFF Research jointly published a report in December 2022, showing how IR35 reforms have impacted contractors.

The report was based on the views of 353 businesses, and HMRC detailed that the IR35 reform generated an additional £1.8bn in tax revenue between October 2019 and March 2022.

Redwood is unsure he agrees with the way HMRC calculated the tax and believes there would be far more tax if there were more self-employed people.

Redwood feels there is something in The Treasury’s model which is “rather static and doesn’t understand that a dynamic economy generates lot more revenue.”

“I think the self-employed case is a subset of that and there’s a fear that self-employed people are going to get away with something or pay a little less tax than if they were an employee,” Redwood states.

Redwood believes the “danger” is that the system discourages people from becoming self-employed, which means fewer expanding self-employed businesses that would generate a lot more total revenue in the economy.

Spring Budget 2023

Many IR35 experts have called for the legislation to be simplified or to be repealed once again in the Spring Budget.

Redwood believes the government should reverse the 2017 and 2021 changes to IR35 and start to promote self-employed working with far less complicated legislation.

“Declaring you are self-employed should be fairly straightforward. I think it is pretty easy to know what an employee looks like,” he adds.

These changes made the employer responsible for considering someone’s IR35 status and took it out of the hands of contractors and the self-employed.

Speaking to Sky News on Sunday (12th February), ahead of the Spring Budget on 15th March, Redwood said: “We want to promote more self-employment – make it easier for people to get into self-employment. That is the quickest way to expand capacity.”

The Chancellor will announce his Spring Budget on March 15, 2023.

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