Businesses reveal the true impact of IR35 reform

Organisations affected by off-payroll changes share their experiences so far

With two months having passed since the introduction of IR35 reform in the private sector, the dust is starting to settle on the biggest shake up in this legislation’s history. 

Following the arrival of off-payroll changes, medium and large businesses are now responsible for determining the IR35 status of contractors they engage, with fee-payers carrying the liability. 

In the lead up to the reform, much was made about how prepared businesses were, if at all. There was even speculation that off-payroll changes could spell the end of contracting. 

But has this been the case? How have businesses reacted? What has their experience of IR35 reform been? And do they have any regrets?

We surveyed 59 hiring organisations and recruitment agencies – none of which are clients of Qdos – to get a clear and accurate picture of the true impact of IR35 reform so far. 

 

Most businesses were ready for IR35 reform 

The good news is that most businesses (51%) felt ‘suitably’ prepared for the introduction of reform on 6th April 2021. 29% even reported being ‘well’ and even ‘very well’ prepared. This left one fifth (20%) of businesses that said they weren’t ‘very well’ or ‘not at all prepared’ to implement the processes needed to fulfil their legal obligations under the reform. 

 

Outside IR35 working remains in tact 

So how did businesses approach IR35 reform?

Refreshingly, the majority (56%) have given contractors the opportunity to continue working outside IR35 if their contract had been assessed as such – this goes some way to quashing rumours that most businesses have banned contractors due to reform. 

Around a quarter (27%), meanwhile, chose to offer contractors a combination of PSC and PAYE working. By this, we mean only engaging contractors whose assignment was deemed inside IR35 via umbrella companies or on employment contracts. 

 

Forced PAYE working not the norm 

Additionally, just 7% of businesses surveyed said they had insisted that all contractors move onto the payroll in some form. This is another statistic that shows PAYE-only working has not been the overriding response from organisations. 

It should also be noted that in many cases recruitment agencies were unable to influence these decisions, with hiring organisations tending to hold the cards. 

 

Risk-averse firms haven’t ruled out a rethink

Why have some firms – albeit a minority – stopped working with contractors altogether? 

The three standout issues for businesses surveyed were; the liability (which was transferred from the contractor to the fee-payer), the complexity of the IR35 legislation and the lack of resources required to carry out compliant IR35 status reviews. 

But that’s not to say these organisations aren’t contemplating a rethink. 40% would approach the changes differently if given the opportunity, while exactly half (50%) are prepared to revisit this strategy if they were confident the risk could be mitigated and the assessment burden relieved. 

Even so, 45% are confident they have the processes in place to compliantly manage reform. A further 29% believe they are abiding by the legislation but are reviewing their strategy and expect it to change in time. 

 

Confusion and contractor exodus leads to negative impact

Unsurprisingly, 4 in 10 firms stated the changes had a negative effect on their business. For example, 58% experienced contractors leaving and 74% said the confusion surrounding the rules had complicated matters for them. However, these figures are balanced out somewhat by  the 35% who reported no issues at all and the 7% who said reform has even strengthened their business. 

 

Key points

What can we learn from this data? 

• Most businesses surveyed have approached reform in a pragmatic manner, choosing to continue engaging contractors. 
  
  
• Regardless, there are many organisations that would do things differently. However, with the right support, it’s never too late to change tack. 
  
  
• Few businesses have had a positive experience of reform, which is of no real surprise given the uncertainty surrounding the changes and complex nature of the legislation. 

Through a range of award-winning IR35 services, Qdos is supporting over 2,800 organisations with their IR35 compliance. To learn more about how we can minimise disruption and protect your business, please email [email protected] or call 0116 478 3390.