Contractors to reject inside IR35 determinations

What are the wider implications of contractors reverting back to outside IR35?

The news that reform to the off-payroll working rules in the private sector has been postponed until April 2021 came as a relief to hundreds of thousands of contractors and the recruitment agencies and businesses that engage these workers. 

It eases the COVID-19 burden on UK Business, offers medium and large companies the time they need to prepare for the changes and allows contractors to decide their IR35 status in the private sector for 12 more months. 

As a result of the delay to IR35 changes, our exclusive research shows that most contractors placed inside IR35 by their client or left with no choice but to work through an umbrella company or as an employee, plan to revert back to working outside the legislation. 

Having surveyed over 1000 contractors, (52% of whom had been assessed as inside IR35 by their engager), the majority (56%) revealed they expect to return to outside IR35 working. Meanwhile, 27% of contractors are unsure of what to do, while 17% will continue to work in their existing arrangement.

More than anything, this reflects the concerns independent workers have over the accuracy of the determinations made by private sector business in anticipation of the expected April 2020 roll-out.

However, our research does suggest that a number of private sector companies are rethinking the way they will manage reform, as these firms reverse decisions to blanket-place contractors inside IR35 regardless of their working practices. 

While it will come as a concern - albeit not much of a shock - that as many as 40% of contractors reported they had been blanket-assessed inside IR35 by their client, 32% of this group said their client has already made a U-turn.  

This change of tack is likely to be due to the fact that hiring organisations won’t become responsible for administering IR35 until next year. Even so, that a fair number will no longer ban outside IR35 working is a positive development - what matters now is that others follow suit. 

What does this mean for contractors?

To a large extent, contractors transferring back outside IR35 was to be expected. After all, reports of risk-averse determinations and blanket contractor bans have become more frequent in recent months. 

Before making the move to outside IR35, contractors should bear the following in mind:

• You must ensure your contract belongs outside IR35, while your client will need to agree to engage you in this way. An independent IR35 status review is recommended. 
  
  
• IR35 insurance is also advised, given you will continue to carry the risk until next April. Beyond this date, HMRC can investigate completed contracts up to six years old, so it’s worth keeping an insurance policy. 
  
  
• If you’re engaged via an umbrella company or as an employee, you’ll need to renegotiate terms. This is because IR35 doesn’t apply to either of these contracts. 

What does this mean for businesses?

That the majority of independent workers will or perhaps already have rejected their client’s determination suggests contractors were unhappy with the decision. Therefore, hiring organisations and recruitment agencies have important decisions to make in the coming months:

• Do they uphold contractor bans and inside-IR35 only working? If so, they risk losing vital skills provided by flexible workers.
  
  
• Do they reengage contractors outside IR35 again? While there are compliance-related considerations, the IR35 risk will remain with the contractor until next year. 
  
  

Above all else, our latest insight sends a clear message to private sector businesses - contractors simply want their IR35 status determined fairly. With one more year until the reform lands, these companies now have another opportunity to make sure this happens.

Qdos specialises in IR35 compliance. We conduct, on average, over 2000 IR35 status reviews every month and have handled more than 1,600 IR35 enquiries. We are currently working with more than 300 recruitment agencies and end-clients, helping them manage incoming changes to the IR35 legislation.