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Contractors question legality of IR35 decisions

Contractors experience “unlawful” IR35 decisions and contrived workarounds

With changes to the off-payroll working rules imminent, 69% of a staggering 12,000 contractors have said they do not believe the way their client has assessed IR35 status is fair, with 58% of the opinion that IR35 decisions are not being made with ‘reasonable care’ despite this being a legal requirement.

In what claims to be the largest survey of its kind, the information gathered by resource site, Contractor Calculator, shows contractors do not think their medium and large private sector clients – that will be tasked with administering the IR35 rules from 6th April – will be ready for the changes or will adhere to the rules.

“Unlawful” IR35 decisions driving non-compliance 

The Government has said it intends to introduce IR35 reform to prevent non-compliance, but according to contractors, the incoming reform is actually contributing to the rules being broken. In addition to concerns held by most contractors that ‘reasonable care’ has not been taken by their clients, only 38% have so far been provided with a ‘Status Determination Statement’ (SDS), with the majority (62%) yet to be told why they have received a particular IR35 decision. This is despite both being a legal requirement under the incoming legislation. 

Also worth bearing in mind is that 53% of contractors have been assessed by HMRC’s controversial IR35 tool, CEST – which has led to only 27% receiving an ‘outside IR35’ decision. Meanwhile, just 1% of contractors have successfully overturned their client’s original IR35 determination, which casts further doubt over the fairness of the tax office’s ‘Client-led disagreement process.’

Contractors subject to blanket bans

The Treasury’s Jesse Norman recently insisted that blanket IR35 decisions are not being made by medium and large private sector firms. And while this research doesn’t expose non-compliant blanket decisions, it does suggest that a large number of companies intend to stop engaging contractors altogether to sidestep reform. This has become a trend in the financial services sector, with a number of banks banning contractors due to IR35 changes.

For example, 30% of businesses have offered contractors the option to work via an umbrella, where the IR35 legislation does not apply. 14% of contractors have been offered permanent or fixed-term employment contracts, 13% agency PAYE positions while, even at this late stage, more than a third (35%) are yet to be offered an alternative to contracting by their clients. 

Mistrust of CEST clearer than ever 

Contractors also made their feelings known about CEST, with only 9% stating they would accept a decision made by the tool. Additionally, 70% of independent workers do not believe CEST reflects the law, with the fact that it ignores Mutuality of Obligation (MoO) no doubt contributing towards this view. 

Rights wanted when working inside IR35 

Contractors fear they will be unfairly placed inside the IR35 legislation by risk-averse clients, which has poured more fuel on the ‘employment rights for employment taxes’ fire. Given that contractors who work inside IR35 are considered ‘employed for tax purposes’, 92% of contractors have said they want sick pay at least. 75% have called for maternity or paternity pay, 82% want legal protection for disciplinary or grievance issues, while 81% would like access to income support. 

More than half of independent workers (58%) have also outlined plans to lodge an appeal at an Employment Tribunal to secure employment rights from their client if they are placed inside the legislation.

With less than one month to go until changes to the off-payroll working rules are enforced, Contractor Calculator has said this survey indicates that “rife non-compliance” is “killing” the flexible workforce. The site says this is reflected in the 23% of contractors who do not intend to stay with their current client after 6th April, the 13% of independent workers who are likely to leave the UK and the 23% who have said they plan to stop contracting due to IR35 reform.

By Contractor Weekly

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14 thoughts on “Contractors question legality of IR35 decisions”

  1. Steve

    This is distrimination in the workplace. Therefore any “in IR35” contractors should gather evidence to sue companies for discrimination later on.. Concider it a pension fund.

  2. Andy Watson

    Recently ended my contract with Sky. They implemented blanket ‘inside’ determinations in addition to stating that that they would be reducing day rates to level out the cost of employers NI payment they would have to make. This is in addition to still enticing a two week furlough, up to three times a year.

    • Anthony G

      Then why renew? Unless you are a disguised employee in which case it was right to deem you inside. It is people who ‘claim’ to be outside who have caused this problem in the first place.
      If you want to be a contractor you should up sticks and find an outside role, like I just have, businesses will soon learn their mistakes but if you’re not so risk adverse and it’s too easy to just stay where you are go permie at let us real contractors get in with it.

  3. Dom

    The CEST just isn’t fair as it bases all decisions on substitution.
    I’m allowed substitution but the first question is worded in a way that it asks if the company allowed to reject substitution? Of course they are in all my contracts. Especially with security clearance required.
    The CEST tool is designed to make you inside IR35.
    There is little point in contracting anymore.
    Contractors are paid for the uncertainty and short term employment with a high risk of no income for periods of the year.
    I think HMRC are just plain greedy. And more blatant than ever. They’re not even embarrassed at this legalisation.

  4. HMRCunts

    HMRC are a cancer to society.
    The Gestapo finance wing are a particularly pernicious department who act above the law with impunity and are largely unregulated. They do what they please, change laws retrospectively to suit their agenda and all at her majesty’s pleasure! The sole function is to purge as much money from you as they can get away with. Career cowards who hide behind those brown envelopes with anonymity. The old Roman Empire was less corrupt.
    This latest farce is all about targeting the large corps into frightening them away from hiring freelancers/contrators so ….. job done.
    The net result is they will bring in less revenue through tax as fewer people will contribute. HMRC have never been very bright in what they do !

  5. Lee

    Simple. I’ll move to another country that treats contractors fairly, and THEY can have my tax revenue instead.

    Not sure why HMRC don’t get it. Freelancers are mobile. Many of us work from home, for companies all over the world. Remote working is growing and will soon be the norm.

    In this mobile world, we won’t put up with draconian/outdated tax policy. We’ll go somewhere we’re respected.

  6. AW eng

    Its interesting but what can you do. My agent assessed me outside ir35 my client did a blanket inside so I am retiring

  7. Martin Crompton

    The company that contracted my services hired an external accountancy consultant and their CEST type tool to run the determinations. The tool was much better than the HMRC tool and resulted in myself and other contractor colleagues feeling quietly confident we’d be determined outside of IR35.

    This was reinforced by the indication that the hiring company had a lot of contractors and for that reason did not want the responsibility of their tax affairs.

    Despite feeling optimistic, I am now beginning to worry as neither I nor the colleagues I work with have been informed about the results of the determinations.

    I have asked on numerous occasions and keep being told the check/review and risk assessment process is taking longer than expected. As of the 11 March we are still non the wiser and there seems to be a general ignorance to the fact that these people are making life changing decisions.

  8. IR35 Victim

    Banks are refusing to work with Ltd companies now.

    That is a blanket ban, but HMRC are ignoring it because it suits them.

    Well HMRC will be scurrying around like rats to try and find all this magic money as it never existed.

    Agencies are now offering rates equivalent to 2000 because jobs are so scarce I will be signing on in April.

    Job done HMRC another success.

  9. Sally Philip

    Inside ir35 contracts are also forcing use of umbrella companies. This is resulting in the EMPLOYERS NI And levies being pushed down on to the contractor which results in significant day rate hit and an increased tax hit by picking up the employers share!! When Gvt roles also do this how is it possible when HMRC clearly states businesses with over £3m payrols should be paying this themselves. It’s just completely unjust and hitting the contractor further!!! The whole thing is completely farcical.

  10. Jonny

    Another retirement here. I would have happily continued to contribute to HMRCs VAT, Corp Tax, NI, income tax and even dividend tax for another 10 years but they wouldn’t let me keep running my own company to service the financial services industry so I’m out.
    Every year I worked as a contractor, I paid more tax than I ever did as a permie.
    Not any more. I’ll be contributing nothing and ekeing out my savings until I can claim my state pension.
    Well done HMRC. You’ve cut my stress levels by almost as much as you’ll find you have cut your own revenue stream.

  11. Cara

    Like many of the others here, my client simply imposed a blanket ban on all PSC workers. Their excuse was being “risk averse”. Quite happy to use PSC contractors for years when the contractor carried any potential liability. How hypocritical. I too shall retire now and the IR will get nothing. Well done IR, another £40 – £50k lost in tax revenue.

  12. Rick Fryer

    I agree with all the comments on here, there is no real choice anymore so I have left contracting altogether. When they applied this rule to the Public sector, I refused to take on any private sector contracts. I know the public sector have since struggled to find the mobile workers they need to complete projects.

  13. Trainee Pensioner

    I have reluctantly decided to switch to an inside IR35 contract with my current client, a large financial services company, but only because I’m less than 2 years from retiring. The procurement manager told me this week that he was working under an Exco policy directive that all PSCs would be determined inside IR35, which is causing serious headaches for numerous projects. The majority of contractors won’t be staying

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