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Ultimatums in response to IR35 reform must be avoided

Private sector companies that fail to offer contractors the opportunity to continue operating outside the IR35 legislation when reform is introduced next April will lose out on the skills and flexibility of these workers, exclusive research has emphasised.

Following reports that several well-known private sector companies are preparing to offer ultimatums in response to incoming IR35 reform, contractors have signalled the importance of not being forced into becoming employees or operating through umbrella companies.

The research, carried out by contractor accountancy, QAccounting, in collaboration with Contractor Weekly, suggests that the vast majority (72%) of the 1200 independent workers surveyed would stop working on a particular project should a client look to avoid the need to administer IR35 when they are handed this responsibility from April 2020.

It has been reported by Contractor UK that HSBC, M&G Investments and Morgan Stanley are preparing to stop engaging contractors outside IR35 or setting up alternative engagement models which would mean these businesses do not need to administer the rules.

At this stage, the specific details of these approaches aren’t clear, but according to this research, it could result in contractors opting to work on contracts where they can operate outside IR35.

This theory is supported given that just 18% said they would continue working on a specific project but through an umbrella company. Furthermore, only 10% of the contractors surveyed said they would accept any offer to go PAYE and become an employee of a client’s organisation.

IR35 reform

Along with the fact that 91% of independent professionals said they take particular pride in working this way, that very few of these workers have the intention of entering employment is something that private sector firms must take into account, said QAccounting’s CEO, Mike Butchart.

“Contractors are proud to work independently and clearly plan on continuing to do so – but outside the scope of IR35. These statistics tell us that very few of these individuals want to become employees. As we approach next year’s reform, this is a message that we urge recruiters and end-clients to listen to.

“The fact that most contractors would stop working on a project if they were handed an ultimatum shows how incredibly important it is that agencies and private sector companies approach IR35 reform on the understanding that it can be managed.”

QAccounting’s CEO also offered a few words of advice to the medium and large private sector firms that are readying themselves for the arrival of IR35 reform next year.

“The businesses that prepare for incoming changes and present contractors with opportunities to have their IR35 status assessed fairly and accurately will be much better placed to continue engaging them.”

 

By Contractor Weekly

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16 thoughts on “Ultimatums in response to IR35 reform must be avoided”

  1. Bob Leatherhead

    I heard that CGI have told contractors working on the £11bn Smart Metering project that they must become employees. I thought the Tories were supporters of small business but clearly not.

  2. Johnboy

    Perhaps it needs contractors on a major project to walk out completely then see what the government would actually do. Smart Metering would be a good one to choose !

    • Steve

      It happened many years ago.. Airbus secured the build of the wings for the A380. The whole design team left the project due to a dispute.. Airbus S**T themselves and brought about change.. Okay it wasn’t IR35, but people will walk.

  3. Jay cee

    I work in oil and gas if the UK companies start forcing me down the inside IR35 route I will work overseas have done it many time before when the oil price is low this time i won’t bother coming back. Lose/lose fior HMRC and contractor companies.

  4. Richard N

    Clearly the government are clueless when it comes to IR35, particularly when it comes to finance. Large international institutions will transfer headcount to other locations rather than convert contractors to perm locally. HSBC, for one, have made it clear that this will happen. I’d be surprised if the US banks don’t repatriate headcount to their own, cheaper, near shore locations.

    That said, the biggest issue I have with IR35 is that the alleged tax increases always refer to income tax. The forgone corporation tax receipts are always ignored. Personally, I pay the 19% corporation tax, then income tax at the higher rate with an overall effective rate of well over 50%. All this tax will be lost as the temptation to move abroad as well will be too strong. The only reason for continuing under the current regime is the flexibility that contracting offers… and the avoidance of intra company politics that goes hand in hand with being a perm.

    Apropos, I cannot understand why associations supporting contractors aren’t constantly raising the corporation tax aspect. They should be refuting the notion that IR35 will increase total tax receipts. Without the tax benefits, there is no case to pursue this route other than spite against one of the most productive sectors of the working population.

  5. Steve

    I’m a contractor, been a contractor for 25 years. I’ve been through umbrella companies before and went onto a limited company because of below.
    The umbrella company collects your taxes, then pays them to the government.. My experience when this goes wrong i.e. the umbrella company folds and has not paid your taxes to the government.. HMRC come back to you and DEMAND you pay them again.
    The UK doesn’t protect you.
    Also I don’t hold a qualification for IT. Most HR companies WILL NOT employ me because of their policies. Why should I be a temporary “employee” with ZERO rights and probably be paid less than an employee with benefits.
    Secondly I don’t live in the areas of my work, so unless its work from home 100% time I’m not interested asthe cost will outweigh the wages.
    Lucky for me I’m near 55 years and will retire or retrain as a plumber /tile fitter for a few years.. The young people, if they have ny sence will seek employment either abroad or in another industry.

  6. John

    I’m sort of working as IR35 now in The Netherlands. So I’m paid 500 euros a day ( 5 days) have to go through a payment company, pay tax 48% and their fee 500 euro’s. Plus some extras i.e. medical, pensions etc.
    I cannot claim anything, hotel (because i can’t get an appartment due to the less than 12 months contract) is 1970 euro’s a month, flights every 2 weeks around a 100 euro’s. we pay 10% extra to eat in the office restaurant as we are not full employees and I’m on a weeks notice. At Christmas we get two weeks unpaid leave and unpaid bank holidays. Is it worth it.. No! but I fancied a break from the UK, will I extend ? No! I’ve never been so poor. I take home after expenses less than a labourer. Good job I have no mortage, loans or ongoing costs i.e. netflix, kids, wife etc. At least the public transport is efficient and subsidsed as I could not afford to run a car here and taxis for a 15 min journey, 30 euros.
    IR35 will destroy the UK’s IT industry.
    Plus employees will see their wages drop as more staff come onboard at lower rates and promotion /training for staff will go out the window.
    Housing.. people will have to move to the area they work as expenses are out the window.. House prices will rise in certain areas, drop where theres little work.
    I personally keep a builder and two labourers going during the winter season .. That will stop and I won’t be buying a new car and laptop every 12 months, more likely every 3-5 years.
    I will probably move to Europe, leave the UK altogther, this and Brexit, the UK is set to take a hammering shortly. I know some of the big consultancy companies are moving offices.. Goodbye work.

  7. Smithy

    IR35 is being applied to us contractors working through Limited Companis but why cant we all work as Sole Traders. Ie genuine Self Employed ? HMRC could not possibly make us plus every corner shop an ‘employee’ of someone they sell or provide a service to. An agency would take a one off fee for placing a self employed person with an end client then we would account for out taxes like all other unincorporated bodies in the UK

  8. Smithy At Work

    IR35 is being applied to us contractors working through Limited Companies but why cant we all work as Sole Traders. Ie genuine Self Employed ? HMRC could not possibly make us plus every corner shop an ‘employee’ of someone they sell or provide a service to. An agency would take a one off fee for placing a self employed person with an end client then we would account for out taxes like all other unincorporated bodies in the UK

  9. Smithy

    IR35 is being applied to us contractors working through Limited Companies but why cant we all work as Sole Traders. Ie genuine Self Employed ? HMRC could not possibly make us plus every corner shop an ‘employee’ of someone they sell or provide a service to. An agency would take a one off fee for placing a self employed person with an end client then we would account for out taxes like all other unincorporated bodies in the UK

  10. Mildred

    The government have completely underestimated how much they are hurting businesses by enforcing these new IR35 rules.

    You don’t have to be a genius to understand that it makes no sense financially to convert a contractor (that provides temporary services) into a permanent position.

    If the government make it harder and more expensive for UK businesses to access the flexible workforce and skills they require in the UK, why would these businesses look to continue building up their base in the UK?

    Many firms , including HSBC have migrated large scale projects to Hong Kong. These projects will be led from Hong Kong and local temporary resources can be hired to replace UK contractors. In other areas , all new temporary roles are being hired from Indian consultancies that will send their consultants to sit in the London office for initial training , then return to India for the continuation of their contract. In both these cases, neither the contractor nor the business will pay any tax in the UK.

    The Tories need to figure out whether IR35 is worth losing the revenue already incoming through corporation tax , VAT and income tax , in exchange for 0% tax. It’s really a no-brainer.

    Contractors are asking themselves what is the benefit to working in the UK anymore , since the contractor job market is shrinking rapidly. The only benefit to contracting is the flexibility it brings and (as the previous comments mention) the exclusion from company politics.

    UK contractors pay a minimum of 50% tax including corporation tax , VAT, etc. So we are all paying tax – why isn’t this point highlighted more often by Contractor Weekly more often ?

    As for the Tories , well done on screwing over UK businesses and simultaneously screwing over the revenue and your now ex-voters .

    • Who Hah!

      Amazes me that HMRC become cowardly when dealing with huge corporation turning over billions… then attack the little fish over some comparative crumbs???

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