Four in ten businesses impacted by recent changes to IR35 in the private sector have admitted they would approach the changes differently if given the opportunity. This is according to a study carried out by IR35 specialist, Qdos, in which 59 businesses affected by the reform shared their experiences.
“It’s never too late to reverse blanket decisions” – Seb Maley, CEO of Qdos
- Nearly half of businesses have regrets over ‘confusing’ IR35 reform
- One-third (30%) of private sector firms already reviewing their strategy for managing changes over IR35
- 40% of businesses said IR35 reform has so far had a negative impact on their business with 35% saying they had no negative implications whatsoever
The most compelling finding of the survey was perhaps that nearly a third (30%) of businesses are already reviewing their strategy for managing the reform despite the changes only coming into force on 6th April 2021.
These organisations – most (56%) of whom have continued to engage contractors outside IR35 if their contract has been assessed as such – also said reform has resulted in confusion, contractors leaving projects, additional costs and project delays.
IR35 reform saw the responsibility for determining IR35 status shift from contractors to medium and large businesses engaging them. The liability was also transferred, from the contractor to the fee-paying party in the supply chain.
How would businesses reapproach IR35?
- the majority (52%) said they would have started preparations earlier
- 10% would not have used HMRC’s IR35 tool (CEST)
- 10% would reverse contractor bans
- 14% would have engaged the help of an IR35 specialist
- 14% cited other factors, including ‘campaigning rigorously against it’
Business challenges created by IR35 reform:
- confusion around the rules (74%)
- contractors leaving (59%)
- indeterminate IR35 status decisions provided by CEST (37%)
- project delays (30%).
Could companies reverse blanket contractor bans?
“Some firms have taken drastic action and won’t engage contractors outside IR35 because of the liability transfer that took place as part of the reform,” Seb Maley, CEO of Qdos told The Freelance Informer.
“This is totally unnecessary and some in cases, even non-compliant. But it’s never too late to reverse blanket decisions.
“Firms should start by communicating to currently engaged contractors that they have changed their stance and will begin to assess IR35 status on a case-by-case basis, allowing genuine contractors to operate outside IR35,” he said.
Maley reiterated that businesses now have the benefit of hindsight and many are already looking to change the way they manage IR35 reform.
“A growing proportion of firms are aware of the fact that IR35 reform is manageable, which is leading some to rethink needless contractor bans,” he told The Freelance Informer.
Maley said that there are some positive findings from the study. One of which is most businesses have continued to engage contractors outside IR35 if their contract is assessed as such.
“Certainly from where we stand begins to dispel the myth that IR35 reform has destroyed contracting altogether,” said Maley.
“Firms should start by communicating to currently engaged contractors that they have changed their stance and will begin to assess IR35 status on a case-by-case basis, allowing genuine contractors to operate outside IR35.”
Seb Maley, CEO Qdos
Maley answered some questions posed by readers:
Q: As contracts seem to have little grounds to go on in the courts and the behaviour of the client-contractor relationship is what is tested, what are some ways that end clients and contractors can change their behaviours so that they are not working within IR35 protocols?
SM: “In IR35 court cases, both the written contract and the actual working practices will be rigorously examined by HMRC and the defence. But often, the working practices hold the key, given they reflect the reality of the relationship as opposed to what has been agreed in the contract.
“To work compliantly outside IR35, contractors and their clients must focus on case law and make sure the service provided reflects a genuinely outsourced provision of labour. From ensuring the contractor isn’t controlled by the client to exercising the right of substitution and demonstrating the contractor isn’t mutually obliged to work for the client, there are many ways to evidence outside IR35 status.”
Q: Would a slightly higher tax rate for contractors be able to eliminate the need for IR35 all together?
SM: “I fear this would create more problems than it would solve – and let’s not forget that contractors have been subject to a number of tax hikes in recent years, with others speculated to be on the way. If all contractors were subject to higher tax to abolish IR35, the majority – who in Qdos’ view belong outside IR35 – would be paying even more in tax despite being recognised as genuine small businesses.”
