Contractors voice concerns over IR35 in the private sector

In the Budget last October, Philip Hammond announced that the rollout of IR35 in the private sector would be delayed until 2020—this was welcome news to UK businesses.

Nonetheless, new research has shown that many UK contractors remain concerned about the implementation of this legislation.

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Over two thirds are “very concerned”

65% of UK contractors who took part in ContractorUK’s survey have admitted to being “very concerned” about IR35 being introduced to the private sector.

Businesses must educate themselves on IR35 legislation and ensure they do not implement a blanket IR35 inclusion without taking into consideration the impact this will have on both their business and contractors.

The IR35 legislation will affect all UK contractors that HMRC has deemed to not qualify within the self-employed status bracket.

Rate increases could partly compensate for the new IR35 landscape. However, the increased burden of compliance and administration added to the sector is likely to be a big cost to companies and hiring contractors.

For contractors who fall within IR35, they can therefore expect increased taxation, as well as National Insurance liability.

According to the survey, 20% of current UK contractors think they will be forced to leave contracting for a permanent role post-April 2020, due to the serious impact the new legislation will have on their livelihoods.

Some of the most notable results provided in the research includes the following:

• 65% of UK contractors believe their income will decrease following the introduction of IR35 in the private sector.

• 80% believe businesses will not understand how to implement the new rules effectively in the private sector.

• 62% have predicted that “blanket IR35 inclusions” when contracting job specifications after April 2020 will result in significantly higher tax liabilities.

• 52% believe that the introduction of IR35 in the private sector will result in companies being unable to deliver on key projects. For example, digital transformation or post-Brexit contingency plans.

• 46% of UK contractors who took part in ContractorUK’s research have admitted that they plan to wait and see what the “initial consequences” will be for the wider contracting market before making a final decision as to whether to remain in the contracting industry.

No confidence

Further research carried out by insurance adviser Qdos revealed 77% of contractors have zero or very little confidence that the private sector will be ready to manage IR35 reform from April 2020.

Qdos’ findings also show:

• 30% have no confidence in private sector engagers to be ready for IR35 changes, while 47% have little confidence, 11% are undecided and 12% believe engagers will be ready

• 61% believe direct clients will be better placed to contribute to accurate IR35 decisions compared to recruitment agencies (39%)

• 36% also view the chance to work outside IR35 as most important when considering a contract.

Thousands of contractors have been wrongly placed inside IR35 by public sector engagers as a direct result of reform in 2017. Understandably, this has led many independent workers to question whether the private sector will be in a position to administer IR35 accurately next year.

Private sector clients and recruitment agencies would be wise to pay attention to what are justified concerns of contractors.

Businesses rely on the flexibility of the independent workforce, while the recruitment industry, that now finds itself caught up in IR35 reform, depends on contractor placements for most of its turnover.

The good news is that these companies do have time to prepare, and reform is manageable.

However, this time does need to be used wisely, and private sector businesses – whether a direct engager or a recruitment agency – should take the initiative and equip themselves with the skills needed to contribute to well-informed IR35 decisions on what will be a huge scale.

The off-payroll rules make end-clients responsible for determining whether a worker who operates through a personal service company or other intermediary is caught by IR35 or is genuinely self-employed.

Where the worker is caught by IR35, the rules also makes the fee payer, which will often be a recruitment agency, responsible for deducting and then paying the worker’s tax, NI and employer’s NI.