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.”
For 20 years I worked as a contractor in various clients offices on clients machines using clients software.
For the last 15 months, working at home on my machine using my software but taxed as an employee from January following a blanket determination
You couldn’t dream this up
I have private clients outside of agencies thankfully who I now mainly work for.
Exactly my experience too with a large corporate client. I worked half from home, used my own equipment as did the many hundreds of other contractors. In the build up to IR35 many of us were engaged fully with their finance department prior to their impending legal assessment.
After being asked for evidence of being outside of IR35 we paid individually for some of the more meticulous assessments from well know evaluators. For most it was green lights in all areas. Unmistakably outside of IR35 in all cases.
Then they announced the legal assessment had been completed and all domestic contractors would be phased out before the (then 2020) IR35 start date. A blanket ban.
No contractor was even interviewed for their “legal assessment”, the blanket ban was put in place without process. We were to be replaced by more workers from the clients existing offshore partner.
Has James Poyser, CEO of inniAccounts been quoted out of context here?
The article makes him sound like some lunatic libertarian. Let the market sort out all problems!
Let me help you James. Contractors with insider secrets and legacy skills for very specific systems will be hired at top dollar to prevent the next Chernobyl. Everyone else cannot be risked by clients who fear the uneven hand of the revenues erratic retribution.
Remember kids, from now on don’t document anything. Keep it in your head.
I work alongside permanent staff and am now deemed inside IR35. All the staff get a holiday bonus (over £400 this year); I get nothing. They get additional Company contributions into their individual pension pot; I get nothing. They get sick pay at full salary; I would get the statuary government rate. When staff are let go they get a redundancy package; I will get nothing. They get an automatic annual salary increase; I will have to jump through hoops to demonstrate why I am suddenly worth more (inflation is not a factor that is ever taken into account). Previously when working through my Ltd company the small tax advantages offset these differences. So now we are all equal are we? Now I am looking for something different or I may decide to retire early.
Personally, with the mess that IR35 is, I have stopped engaging with UK based clients. I joined the Toptal network and am now working with clients based in the US instead.
Until the government get their act together, I will not engage with another UK based company.
For the first time in 20+ years of consulting I am giving serious consideration to leaving the UK.
I just got pushed out of a consulting arrangement with a major telco, despite HMRC’s tool & an independent assessment from a major accounting firm, they made a blanket assessment.
Frustrated to no end. Willing buyer & willing seller, yet the Government gets in the middle and messes everything up.
Starting to wonder how free the free market is.
Free to ‘lobby’ the government to take out your competitors.
Party donation pending.
Another little beauty dreamed up by the Gestapo finance wing. A particularly pernicious department who act above the law with impunity and are largely unregulated. Faceless cowards who hide behind those annoying little brown envelopes that drop through the letterbox. They do what they please, change laws retrospectively to suit their agenda and all at her majesty’s pleasure!
This latest farce is all about targeting the large corps into frightening them away from hiring freelancers/contrators so ….. job done. They don’t necessarily care about those individuals retiring or leaving the UK.
The net result is that it will bring in less revenue through tax as less people will contribute but they have never been very bright in what they do !
All that skillset leaving the UK contractor sector in their droves. Well done HMRC, bravo!!
Contractors are tired of complying IR35 , Umbrella companies, agencies and end clients. Amount of Paperwork’s are astronomical
HMRC should be forced to publish all the numbers all the extra income and losses to the treasury.
Still no heads will roll for this farce.
Hector your a T\/\/@t
I keep hearing about circumstances where some are able to get away with it. Recent example being a group of doctors in the South West who got together, hired a good IR35 lawyer, fought it(NHS intention to put them inside I think), with the threat that they’ll stop doing NHS their shifts to keep patient care available 24/7 and they were then determined outside IR35 -ha. Tbh, their contracts are as inside as any IT contractor but as key medical workers where a shortage exists they get let off and allowed special treatment.
Was meant to add, and good for them! But as seems to be the case, it doesn’t seem a consistent & fair application of the rules.
An illustration that it’s just the engagers making these determinations. Decisions not centred on fact but how much they want to risk a crippling legal battle with HMRC. There is no legal process, judgement or review. No rules, no certainty and excessive risk, so most will avoid engaging unless backed into a corner.
Not the best way to run a country. Who is in charge?