A new survey suggests private sector employers are not prepared for new rules on contracting.
Nearly 60 per cent of businesses are considering a blanket approach to managing new rules on employment status for contractors, according to a new report.
Contractors – many of whom have opted out of employment work to gain greater flexibility, among other factors – fear that this could lead to less work being offered to contractors in the future. The study, by Brookson Legal, shows that 73% of businesses say the new IR35 rules will have an impact on the number of contractors they hire. Of these, 48% say it will encourage them to reduce the number of contractors they hire, while 39% expect there to be fewer contractors available.
IR35 was introduced in 2000 with the aim of countering tax avoidance and specifically aimed at the limited company contractors that organisations hire. It is designed to combat ‘disguised employees’ – which HMRC believes would be employees of the client if they did not work through a limited company. New legislation introduced for the public sector in April 2017 moved the onus of evaluating IR35 tax status from the worker’s own company to the public sector body hiring the worker. These are now liable for collecting taxes and ensuring compliance. The government says the rules will be extended to the private sector in April 2020.
Brookson Legal surveyed 502 businesses for its IR35: A Ticking Timebomb report and says a blanket approach could mean that the contractors businesses currently work with could be forced to work inside IR35 or, in some instances, it could mean that those businesses will cease using contractors working through personal service companies.
It says businesses with a higher percentage of contractors were more likely to consider going down the blanket approach. By company size, medium-sized businesses were more likely to opt for a blanket approach compared to large
businesses – 64% and 56% respectively.
“Blanket approaches can take more than one form. In some instances, hirers simply decide not to engage any more PSCs; in other cases, hirers might decide that the assessment process is too difficult, or risky, and they will simply treat all of their contractors as caught. This is different to hirers making a concerted effort to correctly group contractors with
the same working practices and contracts. Poorly-executed blanket approaches were attempted by many in the public sector, causing widespread problems,” says Joe Tully, Brookson Legal’s Managing Director.
The survey, however, shows that a significant proportion of businesses are aware of the potential harm. Some 41% of
respondents said they would not consider taking a blanket approach, as they don’t want to wrongly assess any contractors and risk losing them.
Moreover, some 47% of businesses know their exposure to IR35 in terms of the percentage of contractors that will fall inside IR35 and have taken steps to understand their risk. However, a third say they are relying on gut feel alone when it comes to understanding IR35 and its impact on their business and 15% say they have no idea at all about IR35.
Just one in two were confident in their knowledge of how IR35 would affect their business, while only 4% expect to be taking on more contractors in future regardless of IR35.
Many were yet to start preparing for the new rules. The main reasons for not preparing included waiting for more guidance from HMRC.
Andy Chamberlain, IPSE’s Deputy Director of Policy, called on the government to pause the roll-out of IR35 to the private sector, saying April 2020 was an “unrealistic deadline”. He said: “This research demonstrates exactly how big a mountain UK business has to climb to catch up with the off-payroll rules. There is a very real risk that contracting, which is a proven driver of innovation and productivity, will be pushed into decline in the UK at the time that it is needed most.
“It is no surprise that clients haven’t spoken to their contractors about these impending changes, they simply don’t know what the new rules will be. We are all waiting to see the draft legislation and that won’t be published until July at the earliest. What we have seen so far is too complex, totally unfit for purpose, and with so many variables that haven’t been decided.”