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Contractors to return to outside IR35

Contractors to reject client’s IR35 decisions

With IR35 reform in the private sector having been delayed by one year, most contractors assessed as inside IR35 by their client will reject this decision and revert back to working outside the legislation, research put to more than 1000 independent workers has revealed. 

After it was announced that private sector changes have been postponed until 6th April 2021 due to COVID-19, insight produced by Qdos shows 56% of contractors who have been placed inside the rules by their client, are working via an umbrella company or as an employee, intend to return to outside-IR35 working. 27% of contractors are unsure of what they will do, while 17% plan to remain in their current engagements.

“I don’t blame them”

For genuine contractors whose clients have given them no option but to work inside IR35 (where they pay tax as employees), this shift is to be expected, explained Qdos CEO, Seb Maley:

“Thousands of contractors have had no choice but to work inside IR35 and therefore don’t trust the accuracy of their client’s decision, which determines if they pay tax as a self-employed individual or as an employee. To make matters worse, these contractors – a huge portion of whom are genuinely self-employed – don’t receive any employment rights despite being classed as an employee for tax purposes. Those who feel they’ve been unfairly assessed or contractors who have had no choice but to work through an umbrella company or as an employee to keep their client want to revert back outside IR35 – and I don’t blame them.”

IR35 compliance is paramount

The majority of independent workers surveyed (52%) said they had been placed inside the legislation or were working on the payroll through an umbrella firm or as an employee of their one-time client. Given most of these individuals told Qdos they are ready to reclassify themselves outside the rules, Maley urged contractors to ensure their IR35 compliance:

“Before working outside IR35, contractors must make sure their contract belongs there, while IR35 insurance will protect them in the event of an HMRC investigation. It also goes without saying that a client has to agree to engage outside IR35 contractors once again too.”

Firms urged to reverse blanket decisions

Whether a company will give contractors the opportunity to work outside the rules having already placed them inside the legislation is also an important consideration. However, this research – that revealed 40% of contractors working inside IR35 had been blanket-assessed by their client – did suggest a significant number of firms (32%) are now rethinking their strategy.

While this is positive news, businesses must avoid banning genuine contractors once again in the lead up to April 2021, stated Maley:

“From a client or recruiter’s perspective, when reform is finally rolled out, as long as the contractor is engaged under the correct IR35 status, whether they work inside or outside the legislation shouldn’t matter. With one more year until the changes arrive, businesses that banned outside IR35 working now have a chance to rethink their strategy. That said, this time must be used wisely and preparations need to start now.”

By Contractor Weekly


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4 thoughts on “Contractors to return to outside IR35”

  1. IR35 Victim

    But will the companies DELETE the decision / judgement used to put freelancers inside IR35.

    If the company does not DELETE the judgement then HMRC WILL use it to prosecute the freelancer.

    If IR35 has been indicated then the freelancer MUST walk away, they will be leaving there company wide open to investigators.

    Bad tax law results in bad outcomes for everyone there will be NO tax bonus for HMRC just more losses and extra costs to police this bad tax rule.

    God save us all from civil servants And their “advisors”.

  2. Graham

    By the next tax year I expect everyone to be inside IR35 without any option otherwise. If not directly, then through revised tax legislation brought in to pay for the mess we are currently in. It wouldn’t surprise me if IR35 ceased to exist.

    • Colin

      I expect everyone to be inside IR35

      It wouldn’t surprise me if IR35 ceased to exist.

      I’m sure you didn’t mean to say everybody would be inside IR35 and IR35 wouldn’t exist, Graham.

      I think IR35 will still exist and HMRC will try to force everybody inside IR35.

      With recent defeats, HMRC may well have to accept contractors/freelancers are in business for themselves and are paying the correct taxes under current legislation.

  3. CX

    “inside IR35 (where they pay tax as employees)”

    Errr no. They are not taxed as employees, since employees do not pay employers NI in addition to employees NI. Only those inside IR35 do that (along with all the same income taxes / bands).

    The companies who have made the blanket decisions won’t change their mind in a year. They don’t trust their own employees enough to be sure that they will treat contractors as contractors, they are afraid that one day HMRC will come knocking and find that the client must stump up a lot of employers NI.

    It’s a dog’s dinner. I suggest that as far as possible, people simply refuse to work inside IR35 unless the rate covers the tax and NI differential.

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