Businesses blanket-placing contractors inside IR35 are losing their competitive advantage
A study into the impact of IR35 reform has revealed that 77 per cent of contractors do not believe their clients have carried out fair and compliant IR35 decisions.
The research, conducted by contractor accountancy, inniAccounts, looked at how IR35 reform in the private sector has affected contractors and their relationships with clients. It concurs with a separate study carried out by IR35 advisor, Qdos, reported on here.
The changes, which came into effect in April this year, shifted the responsibility for determining a contractor’s IR35 status from the worker to medium and large businesses engaging them.
Unfair IR35 decisions tarnishing brands
Since IR35 reform was enforced in the private sector, more than a third (36%) of contractors are now operating outside IR35. This is up from 16 per cent in May 2020, when inniAccounts last ran its survey.
A similar number (35%) said they now work on contracts deemed inside IR35 or were told by their client to stop working through their limited company in response to the changes. 29 per cent reported not currently having a client or were waiting to challenge IR35 decisions.
According to the study, of those whose contracts had been determined inside IR35, more than three quarters (77%) said their status had not been set fairly.
This is affecting brand reputation, with nearly half of contractors (47%) saying there is a difference between how the client publicly states it treats its contractors compared to how they have actually been treated.
Nearly half of contractors would not recommend their client
As a result, 46 per cent of contractors admitted they would not recommend their client to others, while 82 per cent of those classed inside IR35 are now looking for a new client.
In contrast, two-thirds (67%) of the contractors operating outside IR35 said their status was fairly assessed. More than half (55%) also added that the shortage of skills in their industry had increased their bargaining power with clients.
James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, explained that end clients need to rethink their flexible workforce plans if they want to gain a strategic advantage.
‘Two-track market’ of contractors emerging
He said: “We know companies turn to a highly skilled flexible workforce when they need to implement strategic change or shift up a gear after an economic shock. These findings should act as a warning to any company following a strategy of short-term skill for long-term recovery and growth.
“Highly skilled contractors know their worth and will not entertain the prospect of being pushed inside IR35 by unfair processes or blanket PSC bans.
“The evidence is there to see. […] So much so that those with niche and high demand skills are twice as likely to find an outside IR35 contract. As such, a two-track market of specialist and generalist contractors and consultants is emerging.
“Companies that engage with contractors fairly and capitalise on this trend will have their pick of the talent and will win competitive advantage.”