Employee or self-employed? Labour's plans to redraw the line

We all have an idea in our head of what a ‘freelancer’ is – but how can we prove that you, reader, are really a freelancer? Is it down to how much you earn, or how many clients and projects you take on? Or, perhaps you have money and assets on the line if your business runs into trouble.

These questions might just seem like a distraction from the real work of running your business. But in the eyes of a growing number of governments around the world, questions about who is ‘legitimately self-employed’ are at the top of the political agenda; and with a Labour government in power, the UK could be about to walk down the same path.

Earlier this week, IPSE’s Andy Chamberlain was joined by Caroola Accountancy’s Chris Bloor and Seb Maley of Qdos Contractor for a live panel event to discuss all of this and more, aiming to answer the question: “What does the Labour Government mean for contracting?” 

If you missed this event, IPSE members can watch the recording back on-demand by logging in and finding the event you want to watch.

The consensus from our panel of experts this week was a resounding ‘yes’. Described as a “web of complexity” by one of our panellists, the rules for determining whether or not someone is ‘genuinely’ self-employed are entirely based on court rulings stretching back more than half a century – the most recent of which came just last month in a case concerning football referees.

The trouble is, none of these rulings seem to give freelancers and clients much in the way of certainty over when it is ‘legitimate’ for them to work together – or security from the threat of tough and unpredictable enforcement action later on.

In fact, in the referees’ case, the ruling handed down by the Supreme Court potentially makes it even harder to prove that someone is self-employed.

That’s why it’s encouraging to see that the Labour government has quietly signalled its intent to “consult on reforms to the employment status framework.” This potentially paves the way for simpler, fairer rules around engaging sole traders, freelancers and contractors for work assignments – including the IR35 rules.

It’s fair to say that the self-employed were not front of mind when Labour made a pledge to change our employment rules. 

The real aim of their original manifesto pledge – to create a “single status of ‘worker’ for all but the genuinely self-employed” – was to merge the existing ‘employee’ status with the less well protected ‘worker’ status, giving all employed persons access to the same, higher level of employment protections.

IPSE has tentatively supported the proposal, urging the new government to seize the opportunity to look at the underlying employment rules and improve how they work for the self-employed – something which was not guaranteed at first. But, buried deep in the government’s impact assessment for its new Employment Rights Bill is a commitment to “consult on reforms to the employment status framework” which they say will “investigate in detail the differences between workers and the genuinely self-employed.”

Freelancers and contractors will be hoping that by finding (and potentially legislating) the differences between themselves and regular workers, government will be able to unpick the damage caused by reforms to the IR35 rules – an outcome that is being pushed for across the world of business.

When IPSE wrote to the Chancellor last month ahead of her maiden Budget on 30^th October, we weren’t the only ones calling for something to be done about IR35.

In it’s own letter, the CBI – Britain’s biggest business lobby group – urged the Chancellor to “radically simplify the IR35 regime” by introducing a “green card” facility, easing the administrative, compliance and potential financial burden the rules are placing on hirers. The card, they say, would be given to freelancers after applying to HMRC and would give certainty to their clients that their services are out of scope of the IR35 rules.

It's not clear what criteria would be used to judge which freelancers should receive a green card, or how simple it would really be to convince HMRC to hand them out. But the influential centre-right think tank, Onward, have developed their own answer to these questions in a new report published just this week.

In a report highlighting the biggest barriers to entrepreneurship in Britain today, IR35 featured at the top of the list. They called for the off-payroll working reforms to be scrapped, handing responsibility for determining IR35 status back to contractors. But to guard against abuse of the rules, they believe a simplified HMRC tool could offer straightforward verdicts based on five simple criteria: control over work, putting own money at risk, provision of major assets, coverage of own training costs, and accountability for work.

Ultimately, the fate of ideas like these will depend on what the Labour government chooses to do with our employment status rules. For all the opportunity that a reform of the rules offers to make life easier for freelancers and their clients, it could equally lead to an even further tightening of the definition of ‘self-employed’ – something which IPSE will be watching for whilst working closely with government.