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Contractors Make Stand Against IR35 Ultimatum

Contractors poised to leave projects if handed IR35 ultimatum

What would you do if, as a limited company contractor working outside IR35 in the private sector, next April you were faced with an ultimatum to either become a permanent employee or operate through an umbrella company?

After reports that several well-known financial services companies, including the likes of HSBC and Morgan Stanley, are preparing to stop engaging contractors outside the IR35 rules altogether, this is the dilemma that a number of independent workers might face.

From 6th April 2020, medium and large companies in the private sector will be tasked with setting the IR35 status of the contractors they engage. As part of these changes, the IR35 liability will also shift from the worker to whichever party operates as the fee-payer in the supply chain. More often than not, this will be the end-client or the recruitment agency.

Unsurprisingly, the agencies and end-clients that fail to give contractors the opportunity to operate outside the IR35 legislation look set to lose out. Should these companies hand contractors ultimatums, our study, in collaboration with Contractor Weekly, suggests that the vast majority (72%) of the 1200 independent professionals surveyed would leave that particular contract.

Such is the value that contractors place on independent working, only 10% said they would accept any offer from their client to become an employee. This was further emphasised by the 91% of the contractors who told us they take particular pride in working this way, with only 9% saying they see it as ‘just a job.’

Furthermore, the prospect of being forced to work through an umbrella company is nearly as unnappealing to this set of contractors as going employed, with just 18% stating they would do so. While umbrella companies offer a valuable service, it seems most contractors who provide their services as a genuine business are reluctant to work technically as employees of an umbrella, meaning they are taxed as such.

The additional costs involved when operating via an umbrella company means there is also a possibility that contractors opting to work through these vehicles could raise their rates significantly in order to ensure they take a similar amount home. Needless to say, this would increase the cost of hiring for the end-client.

In short, these statistics suggest that recruitment agencies and private sector engagers should plan for IR35 reform. They show us that contractors are not interested in stopping working independently to become employees when further IR35 changes are introduced next year.

Therefore, the medium and large companies that prepare for incoming IR35 changes, offer contractors the opportunity to have their tax status assessed fairly and allow these individuals to work outside the confines of the legislation will be better placed to attract them going forward.

While the prospect of private sector firms taking a risk-averse approach to IR35 changes is a concern, it should be said that these companies seem to be in the minority. Despite posing obvious challenges, it is widely expected that opportunities to work outside IR35 will continue to exist after the introduction of reform.

Learn more about QAccounting’s range of IR35 services here.

By Troy Stevens

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9 thoughts on “Contractors Make Stand Against IR35 Ultimatum”

  1. Steve

    What EVERYONE is forgetting.. Its not about becoming an employee or working through a payment company as a ghost employee.. Okay both don’t suit most freelancers but the biggest impact is MOVING HOME, SELLING UP AND BUYING A NEW HOUSE. Most contractors I would say don’t work where they live.. I’m 53 years old and sharing a house with 20 year olds isn’t fessible or usually allowed by landlords as its a bit weird.. So I stay in a Hotel.. Tunbridge Wells for a 1 year project, 3 star hotel with discounted rates £17k no breakfast and travel between Suffolk and Kent twice a week. How can I do that when I’m a ghost employee or real employee.

    • Frank

      Steve I absolutely agree. The treatment of expenses as an inside IR35 contractor makes it impossible to work away from home. The treatment of expenses is not even on a par with an employee which is bizarre. Paying all expenses after tax will end a lot of contracts if forced to work inside IR35.

      I currently work inside IR35, it only works as the contract is local with additional expenses…

  2. Robin Enntwisle

    I have operated as an independent contractor since 1993 – so before IR35.and have always operated via my Ltd Company. My professional profile/reputation has been built up over the years with this as an integral of my identity. To be asked to either become an employee or work under an umbrella would mean loosing everything I.ve achieved. I would unequivocally opt to leave a contract under these circumstances no matter how lucrative it may be.

    Also I started operating as a Ltd Company when it was quite legitimate to do so. It appears now that due to a few high profile reports in media of individuals ignoring the rules that a whole swathe of company law has been removed over recent years at the detriment of genuine freelancers

  3. CX

    With the new PM and Chancellor in place, I’m surprised that there’s no moves afoot to lobby to have these changes suspended, ended or reviewed.

    It’s surprising how many awful things Hammond and May managed to push through just before leaving.

    • Steve

      IR35 will come in and as its now the company employing you that takes the risk of a fine then they will take the easy option and go for inside IR35. As a freelancer you need to look at the options. I think if you live in the west of London or an area where there are multiple companies that use IT services then to accept the wage drop and go with the flow.
      For those of us not in that position then a career change is a real posibility or work abroad (although Brexit will hinder that). A career change for me can be a ceramic tiler, plumber or electrician. I will earn as much as a IT contractor as I live local, travel less, work less hours and ultimately have the same money in my pocket after tax.
      The electrian although there is a 6 month training plan will earn me more money.
      As a insideIR35 employee you will benefit from shorter hours as why would you bother to do unpaid overtime and possibly holidays, sick days etc for the non prospect of promotion.
      It’s like this in Holland as we are really as IR35 contractors.. easy days, no stress and my phone is off as I leave the building we are ghosts to the employees

  4. Trip

    The big companies will still need the work done, if they can’t source the flexible workers in the UK they will source them in another country. My end-client has been reducing its London workforce since the onset of Brexit – those that remain in the UK are held by highly skilled consultants – none of whom will take a permie role or continue inside IR35 as both will undoubtedly lead to a retrospective interpretation of having always been inside IR35 (despite what HMRC might have said to the contrary). I am actively seeking to work abroad now – my role is leaving the UK I might as well go with it!

  5. Geoff

    I wonder how much bluff there is in this survey? The experience in the public sector was that people either bit the bullet or moved to the private sector. Now the private and public sectors will be the same, what HMRC wanted in the first place…..

  6. Lewis Robinson

    Consider this:
    If companies intend to blankety brand freelancers as inside IR35, effectively making them permies with no permie benefits or protection (just permie liabilities), why would the same companies continue to employ real permies and pay for all those benefits and be subject to offering worker rights?
    It seems to me that companies will prefer to staff up with inside IR35 temps at the expense of permie headcount and save themselves the pension liabilities, bonus pool costs and handy things like paid maternity leave and medical coverage.

    You could argue that permies have as much to fear here as us freelancers. Another stunning piece of legislation from our glorious leaders.

  7. DW

    I have contracted for 25 years. The market is very poor for contracts at the moment, for every contract role there are large number of applicants, there are roughly 20 permie roles for each contract role I am seeing… with Brexit and IR35 why would any company go forward with ‘discretionary’ contract roles. The global companies I have worked with in the past are now posting those roles to Brussels… Can I survive till July next year without a contract because the politicians don’t have a clue…

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