Further research into potential impact of ir35 reform

New research provides damning indictment of potential IR35 reform

Since IR35 reform was enforced in the public sector last year, there’s been no shortage of data to suggest it has failed to increase compliance, affected temporary hiring, and impacted the earnings and mental well-being of contractors.

Unfortunately, arguments that focus on these points seem to have somewhat predictably fallen on deaf ears, with the prospect of IR35 changes in the private sector still looking likely. Many IR35 experts predict the Government will announce further changes sooner rather than later, despite promises from The Treasury to make a decision based on a thorough analysis of the public sector roll-out.

Now, contractors have made their feelings clear on the matter once again, with Contractor Calculator research providing new and concerning insight into the potential impact of widely expected changes.

94% to avoid projects inside IR35.

Should private sector changes arrive, inaccurate IR35 determinations could rise, as engagers get to grips with the largely unwanted responsibility of setting status. If potential reform mirrors the chaos that ensued following public sector changes, contractors will simply look for projects outside IR35.

That 25% of contractors would not only avoid, but never under any circumstances take on a project inside IR35 emphasises the importance of accurate decisions. To avoid major skills shortages and to protect contractors, it’s vital private sector engagers are able to make well-informed IR35 assessments. And by all accounts, preparations must start now.

94% want rights when ‘employed for tax purposes’.

And why shouldn’t they? Contractors working inside IR35 pay similar taxes to employees but receive zero employment benefits. In the past, The Chancellor has spoken about the need for equality in the tax system, but where’s the fairness in this?

More so, 89% of contractors are willing to consider legal action to secure employment rights when working under IR35. Introducing employment rights for workers ‘employed for tax purposes’ must be prioritised, regardless of whether reform goes ahead or not. And this, you might argue, is yet another problem the Government has created for itself.

73% would raise rates to combat IR35.

Understandably, the majority of contractors would only work on projects inside IR35 with a significant rate rise, and presumably one which covers the cost of working under the rules.

If the contractor isn’t burdened by the cost of IR35, the client or agency is. While it’s difficult to gauge the true impact that rising costs would have on the overall demand for contractors, the reality is, higher prices are rarely welcomed and will do little to win the Government support from companies engaging these workers.

54% would work less each year to avoid IR35.

That most contractors would stop working to avoid IR35-caught contracts is a worrying prospect. This would severely dent contractors’ annual earnings, recruitment industry revenues, breed huge skills shortages and impact the UK economy, which contractors contributed £119bn to in 2016.

Additionally, this would perhaps be the nail in the coffin with regards to IR35, and a firm indication that the Government’s tax strategy just hasn’t worked. However, it is an altogether avoidable situation.

79% do not trust CEST.

The failings of HMRC’s IR35 tool have been well documented, particularly the technology’s over-reliance on substitution and the fact it assumes mutuality of obligation (MOO) exists in every contractor arrangement.

CEST’s one-size-fits-all logic does not cater for the sheer diversity of contractor roles nor the fine details of a unique working arrangement. At last count, the tool was said to have provided over 750,000 answers. It remains to be seen as to how many of these are accurate or would stand up in court.

48% will not vote for an MP in favour of IR35 reform.

With around 2 million independent workers in the UK and counting, the contractor vote is becoming more influential, whether the Government likes it or not. Politicians must realise this and quickly, that is, if they have any hopes of appealing to a growing percentage of the electorate.

Contractors should write to their MP if possible. Qdos Contractor have seen an influx in queries made by local MPs to the Treasury challenging them on IR35. Contractor Calculator has created a template letter which can be found here.

23% will stop contracting.

Should private sector reform materialise and the implementation of the changes mirror the public sector, contractors might well feel as though they have nowhere to turn, signalled by the near quarter who are prepared to quit contracting altogether.

Independent workers clearly have huge concerns about the possibility of private sector reform, and rightly so. The chaotic roll-out of public sector changes - which continue to impact the sector despite the Government’s insistence otherwise - have offered little reassurance to these workers that reform could in fact be managed.

If further changes are introduced - and all the signs point towards this - 5.7m private sector companies and agencies must equip themselves with the skills and expertise to make correct IR35 decisions. Qdos Contractor provide an independent review service combined with knowledge and support, to do just this.

For contractors to continue working outside IR35 and for the UK economy to still benefit from the growing flexible workforce, it’s clear there cannot be a repeat of the mess which has defined public sector reform.