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.