Contractors want to continue working independently, but doubt client’s IR35 readiness

Contractors’ concerns highlight need for private sector firms to ramp up their IR35 preparations

With less than six months until IR35 reform is extended to the private sector on 6th April 2021, contractors have revealed to Qdos their possible plans for life after the changes.

The results of this study, which over 750 contractors participated in, show that many contractors are split over their future and have very little confidence in their clients to assess IR35 status correctly.

These are both findings that highlight how important it is that businesses equip themselves with the skills and knowledge to conduct well-informed and accurate IR35 status decisions.

Following many contractors’ experience of public sector changes in 2017, which hasn’t been helped by reports of blanket IR35 determinations in the private sector, three quarters (75%) of those surveyed said they do not have faith in their client to determine IR35 status correctly. The remaining 21% are unsure, while just 4% have confidence in their client to get things right.

However, as our CEO Seb Maley pointed out to Contractor UK recently, given many contractors are yet to be assessed, that contractors are sceptical is to be expected to a degree.

Contractors’ concerns made clear 

It is this negative narrative surrounding IR35 reform that looks to be impacting contractors’ confidence, causing many to think carefully about working this way beyond April 2021.

For example, nearly one in five (18%) said they are thinking about closing down their business as a direct result of the changes. For 75% of this group, this would be a decision made as a direct result of the incoming reform.

Meanwhile, 17% have said they could go employed, 14% have other plans such as expanding their current company or starting another business, while 6% are considering retirement.

The positive news at least is that the largest outright group (45%) will continue contracting beyond April 2021. And while this figure currently amounts to less than half, in the coming months more private sector businesses will begin carrying out IR35 status reviews. This could hold the key to convincing contractors that reform is manageable.

Regardless, this research does reflect how worried contractors are about rapidly approaching reform, which will see these individuals lose the right to determine IR35 status when engaged by medium and large businesses.

Contractors want to continue working this way beyond April 2021

Importantly, our insight also shows that contractors do not want to become employees or be left unable to operate as a genuine contractor through a personal service company. Nearly all (93%) of those surveyed said their preferred way of working is via their limited company.

Above all else, this statistic, in particular, may prove crucial in deterring businesses from blanket-placing contractors inside IR35, insisting they work through umbrella companies before an IR35 assessment or offering them employment positions only.

Businesses urged to ramp up IR35 preparations

In the months leading up to April 2021, the onus therefore is on medium and large businesses and recruitment agencies - that will become liable for IR35 as the fee-payer in the supply chain - to approach IR35 reform in a measured and pragmatic way.

Given the vast majority of contractors prefer to operate via a personal service company and legitimately outside the clutches of IR35, the strategy adopted by businesses must allow for this.

Failure to do so, whether by banning outside IR35 working or giving genuine contractors no alternative but to work on the payroll, will see businesses lose out on the skills, flexibility and savings offered by contractors - three things that will prove vitally important as companies take their first steps on the road to recovery.

Qdos provides a range of leading IR35 solutions for contractors, recruitment agencies and hiring organisations that ensure for the successful and compliant implementation of changes to the off-payroll working rules.