Fresh concerns raised about recruiters’ readiness for IR35 reform
Are Recruiters Ready for IR35 Reform? Well with little over six months to go until IR35 reform is extended to the private sector, contractors impacted by the pending changes have issued a vote of no confidence in recruitment agencies, with only 7% telling us they are confident agencies will be ready to contribute to accurate status decisions when the time comes.
From next April, medium and large private sector companies will set the IR35 status of the contractors they engage, with fee-paying recruitment agencies set to carry the IR35 liability. Similar changes were enforced in the public sector two years ago and, in many cases, led to public sector bodies making risk-averse and incorrect IR35 decisions.
It is perhaps the public sector experience that has contributed to contractors’ lack of confidence that incoming changes can be managed. Certainly, independent workers made their feelings clear in our recent survey, which was carried out in collaboration with Contractor Weekly.
Our research indicates that nearly 8 in 10 (79%) of more than 1,200 freelancers said they are not at all confident or not very confident that agencies will be ready come 6th April 2020. The remaining 14% of contractors were undecided.
Lack of faith in agencies becomes increasingly apparent
Additionally, our study showed that independent professionals are of the view that they will have a better chance of having their IR35 status reviewed accurately without an agency’s involvement.
Of the limited company contractors who completed the survey, only 18% believe that by working through an agency they would have a better chance of their client determining their IR35 status correctly. Worryingly for agencies, the remaining 82% of independent workers believe the potential for mistakes is greater when sourcing protects through recruiters.
When contractors were asked why they fear the prospect of an agency contributing to an IR35 determination, around one in two said that in involving recruiters, there are too many parties involved in the IR35 decision-making process. Most of the rest of independent professionals who feel this way reiterated the fact they do not believe recruiters will be prepared for IR35 changes.
Of the contractors who have faith in agencies to help clients set IR35 status correctly, the majority said it is the recruitment industry’s reliance on temporary workers which will ensure this happens. The remaining contractors said the very fact that in most cases, recruiters, as fee-payers, will carry the IR35 liability, should encourage them to help end-clients make well-informed status decisions.
Half of contractors to down tools if blanket IR35 assessed
Add into the equation that contractors would much prefer not to be blanket assessed and the need for recruiters to help end-clients set IR35 status correctly becomes increasingly apparent.
Upon the arrival of public sector changes, The NHS was one of several bodies that immediately placed all contractors inside IR35 as they looked to protect the liability they were handed. Reports say this led to a contractor walkout, as independent professionals left their roles, opting to work on projects where they could either set their own IR35 status or have it assessed fairly.
Looking ahead to reform in the private sector, there have been whispers that a handful of companies will blanket assess their contractor workforce – incidentally a decision which is non-compliant.
Our study suggests this would backfire on the businesses that made blanket decisions. Around half of the contractors surveyed told us they would stop working on a particular project if they were placed inside IR35 automatically. One in four would raise their rates to take into account the extra cost of working inside IR35, while 20% would challenge the decision. Less than 5% would opt to work through an umbrella company.
So in conclusion, what do these statistics tell us and are recruiters ready for IR35 reform?? Above all else, you could say they show that for recruitment agencies to continue attracting contractors and, at the same time, protect their own liability when operating as the fee-payer, it is vital they prepare themselves for IR35 reform.
Learn more about QAccounting’s range of IR35 services here.
The reluctance of recruiters to invest in or even consider anything which doesn’t produce a commission doesn’t bode well for the prospects of contractors post April 2020. We’ll hear a lot of words from them because words are cheap. In terms of robust processes to thoroughly assess individual cases, well that will look far too much like work for most of them.
Market forces may be the contractors’ friend though. In a ruthlessly competitive, low barrier to entry, market like recruitment some may be tempted to seek the competitive advantage which would be gained by attracting the best pool of contractors through IR35 friendliness. They might also consider insuring the risk in the same way that many contractors obtain comfort from the thought that their liability to investigation and tax/penalties is insured. (Though they would quickly discover in the event of a flood of claims that to be false comfort indeed when the underwriters collapse.)
With an early general election considered by many pundits to be highly likely, contractors would be well advised to review the policies of each party towards IR35 reform. A rare opportunity to exert democratic influence may soon be available. I recall that under Vince Cable the Libbies seemed to have identified a market opportunity by paying some lip service to IR35 friendliness. Whether this remains the case under their new leader I’m not sure but it would cost contractors very little to find out. The prospect of coalition government with a party committed to Europe may be just the ticket Boris needs to revisit IR35.