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Contractors prepare for IR35 reform

Depending who you believe, the Government is gearing up to announce further IR35 reform in The Budget next week. While there is no evidence to show this will happen on 29th October, the UK’s 2 million contractors and thousands of businesses servicing this vitally important sector are nonetheless on stand-by, preparing for what many consider to be the worst, but hoping for the best.

As rumours gather momentum, contractors are understandably feeling under siege and unsupported by what they see as a Government that consistently voices its support of the independent workforce but fails to back up its promises with positive action.

Not for the first time, contractors’ lack of confidence in the Government to do what is widely considered as the right thing for them and the UK economy has been demonstrated, with just 1% of the opinion that further IR35 reform will not materialise. Meanwhile, only 13% think it is unlikely, leaving 86% of contractors to tell Qdos Contractor they believe changes are certain or likely.

For some time now, the Government has insisted that private sector IR35 changes are being considered, and not – as many firmly believe – definite. Financial Secretary to The Treasury, Mel Stride, is regularly asked, but remains tight-lipped about the possibility of handing 5.7m private sector companies the responsibility for setting contractors’ status – a move which would also likely shift IR35 liability to these engagers.

Mr Stride isn’t the only one adding greater uncertainty to the debate about the future of the IR35 legislation though. He makes up one of a group of senior Treasury officials and Government Ministers whose stance on reform has barely moved an inch, much to the frustration and concern of the business community.

Should changes be enforced, needless to say, most contractors do not have confidence they will be assessed fairly or accurately by their client or agency. One imagines the sheer number of blanket determinations and risk-averse IR35 decisions in the public sector has shaped attitudes.

But given contractors’ belief that reform will arrive, they are bracing themselves for the possibility that private sector engagers will be put in charge of setting IR35 status sooner rather than later.

And now, nearly 1200 contractors surveyed by Qdos Contractor have indicated a number of ways they intend to manage IR35 reform if and when it is introduced.

Move to a contract outside IR35

The considerable financial implications of working inside IR35 (which can cost contractors up to 30% of their earnings) has led almost a third (32%) to state they would refuse to enter a working arrangement caught by the rules.

Given millions of businesses rely on the contractor workforce, this highlights the need for the private sector to avoid blanket-inside rulings and instead carry out individual and well-informed IR35 assessments.

Put simply, engagers taking a risk-averse approach will struggle to attract contractors, such is the financial hit these individuals take when lumbered by IR35.

Raise day rates

Again, around one in three (30%) contractors would increase their prices to account for the possibility of being placed inside IR35 by their engager.

This was a trend seen in the public sector following reform and, according to APSCo data, 45% of recruitment agencies experienced rising costs of resourcing independent workers, with nearly half reporting that contractor day rates had risen by 15% or more.

Naturally, contractors will look to maintain their current level of earnings, but significant rate rises would impact the cost of engaging these workers. And this must factor into the Government’s thinking.

Obtain a professional IR35 contract review

With the power to set status perhaps soon out of their hands, 21% of independent workers would have their contract professionally reviewed, knowing it would strengthen the argument they can make to their engager for sitting outside IR35.

Given CEST – HMRC’s IR35 tool – was recently deemed in a tax tribunal to have wrongly placed a contractor inside the rules, the technology clearly cannot stand up in court. This is no doubt why many contractors intend to turn to IR35 experts, who have the experience and understanding of the legislation to take an objective and unbiased view of their status.

Armed with this information, contractors will then be better placed to convince engagers they are genuinely in business on their own account.

Consider alternative avenues

The remaining 17% of contractors would consider a range of other options, including; all of the above, moving overseas and even forming small businesses with other independent workers to provide an agency service. While this entrepreneurial thinking should be applauded, tax reform that has the potential to force contractors’ hand and threaten the independent workforce should not.

With The Budget fast-approaching, UK business is currently wondering about The Chancellor’s intentions. Has he already made a decision on IR35? Perhaps. Although, only his closest aides will truly know what he has in store for 29th October.

But should there be any doubt in his mind about IR35 reform, Mr Hammond doesn’t need to look far to find reasons not to roll-out private sector changes which, if implemented as chaotically as public sector reform, could irreparably damage the independent workforce.

By Contractor Weekly

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