Contractors split about whether ‘outside IR35’ opportunities will exist after reform
Contractors continue to voice concerns about whether private sector companies will be ready for the introduction of IR35 reform next year, with the majority of these workers wondering if they will be able to operate outside the legislation going forward.
Lack of confidence in companies to make accurate status decisions is so commonplace that six in ten contractors told IR35 expert, Qdos, they don’t know the answer. There’s a case to be made that the chaotic public sector experience, combined with HMRC’s aggressive treatment of taxpayers in recent years has led us to this point.
The remaining 40% of contractors are split. 14% do not think engagers will present them with opportunities to work outside IR35, but 26% on the other hand, do. That more of these workers have a positive rather than a negative outlook should be viewed as a sign of progress given years of speculation about the future of contracting.
Those who have reservations about private sector engagers’ ability to deliver outside IR35 assessments feel this way due to a number of reasons. The overwhelming majority said to Qdos their expectation is that companies will be inclined to make risk-averse decisions, lack the in-house expertise in this tax, and will rely heavily on CEST, HMRC’s unpopular IR35 tool, which is at best seen to be unproven in the public sector.
IT contractor, Peter Aveyard, for example, reflected one or two of these opinions:
“For many of us, the greatest worry is that end-clients do not have the awareness or knowledge of IR35. I have yet to come across a client that understands it. Often, senior management thinks of IT contractors as just an additional resource to their teams without considering their own commercial situation and the impact if their contractors are deemed to be disguised employees.”
Other views expressed were summed up by another contractor, who made the comment that “HMRC don’t seem to understand IR35, so how can anyone else?”
There is also an underlying concern among contractors about the taxman’s objectivity. Many stated plainly they do not “trust HMRC to make unbiased decisions.” In view of the House of Lords report that found HMRC to be unacceptably aggressive in its treatment of taxpayers and in particular, contractors, these fears seem well-founded.
It’s likely this list of doubts will resonate with many contractors who have not yet joined in the debate. They do certainly with IR35 experts, who often argue that HMRC itself doesn’t have a strong enough grasp of the legislation it created and enforces.
Contractors also reinforced a theory that working outside IR35 is perhaps the most important factor when thinking about taking on a project. More than a third of individuals said it matters more than the rate of pay offered (although it is closely aligned), the flexibility of the role, location and the type of work.
But this shouldn’t be interpreted as saying that contractors are entirely financially motivated. One individual pointed out that it’s more to do with what’s fair, saying: “I will not operate under IR35 taxation like an employee and receive no benefits for doing so.”
More food for thought for the Government? It should be. It’s widely acknowledged that contractors want to see tax status and employment rights aligned. HMRC disclosed in last November’s IR35 Forum that while they plan to consult on the issue in due course, it is not a priority. The 89% of contractors who have called for rights when operating inside IR35 no doubt disagree.
Because of the perceived unfairness of working inside IR35, 40% of contractors said they would be willing to consider raising their day rates as a way of coping with the additional tax burden. However, IT contractor, Peter, thinks this would turn out badly:
“In reality, you have to find clients willing to pay. I think the outcome will go exactly the way HMRC wants it to.”
Clearly, contractors are yet to be convinced that reform will pan out the way they hope. Although, there are signs that these workers are more optimistic than pessimistic overall, which will be welcomed as a positive step in the right direction.
I’ve been talking to some of my colleagues. What the government hasn’t taken into concideration is that 50% of contractors are not the employee type and these guys will look elsewhere for different work or retire.
For the guys that remain and evenually take up employment will upstage the already employees with their far ranging experience and put already employees chances of promotion back years.
I suspect that there will be an awful lot of staff PM’s who will be leaving as most are useless and are about to be replaced as the “contractor” won’t be so willing to prop them up as their positions are in the target sights.
Next 5 years should be fun 🙂
Exactamundo
How are they going to look elsewhere? Are they going to work in the public sector? Oh wait, it’s already implemented there, isnt it?
Retire? Unless you are within a couple of years of your intended target retirement date, that’s not going to be an option.
Usurp permies by going permie? What, with the contractor mindset of ‘I do what I want, when i want and come and go as I please’? Yep, I can see that working out well.
At the end of the day unless you are very niche or have a very like minded client, most contractors will have to suck it up.
Word of warning from experience:
I used to work as an Engineer and used umbrella companies in the 90’s.
They take your tax/NI at source.. If they don’t pass it on to the government and they go bust! You will be paying twice as the government will come to you to pay it again.
Happened a couple of times to colleagues and why I used a limited company in the end.
1000+ contractors tax/NI for a year is worth going bust for.
It seems like the British government is doing their best to ruin small businesses by introducing more and more red tape and regulations. IR35 is just another nail in the coffin.
The greatest threat to the UK is the UK itself.
Yet again, many contractors burying their heads in the sand. The number of contractors who think private sector companies are just going to pay extra rate because the contractor has a larger tax liability is a classic example.
Try going to your client and saying you want an increase because your overnight accommodation costs have rocketed and see what they say.
IT contractors are not doing their homework.
The point is: if you behave just like any another employee… well… IR35 will catch you! Pretty simple.
In order to avoid IR35, contractors need to think like entrepreneurs (in contrast to thinking as employees!) and find innovative ways to explore the IR35 legislation so that we fight IR35 legislation with IR35 legislation.
IT contractors need to talk to each other and form alliances based on mutual trust so that, behaving as a union of people serving the client, this union of people clearly cannot be classified as a single person behaving just like another employee.
If you are interested, contact me via LinkedIn.
You can find my profile at LinkedIn /in/rgomes
I’m a 41 year old IT contractor with skills that are currently considered as in demand. I consider myself good at my job, and bringing value to the companies I engage with.
If I can’t find any roles that are considered outside IR35 then I’ll probably drop out of the labour market for a while to see how things pan out. Depending on what happens, I may not come back into IT.
In the grand scheme of things, I’m sure the market won’t miss me, but it makes me wonder how many others might be considering doing the same.
I am clearly outside IR35 but one of my big public sector clients made a blanket decision to state all contractors were inside. I expect the same will happen with most of my private sector clients.
I’ll just retire 5 years earlier than planned, war chest doesn’t really need any more.