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A new survey shows many firms appear to be leaving assessments for IR35 until the last minute and that many are imposing blanket bans on contractors.
More than half of UK private firms that hire contractors are yet to assess them for IR35 – the Off-Payroll rules – which come into effect in April and a similar number of contractors think they will not be with their current client in four months’ time due to the changes, according to a survey of contractors.
The survey of over 3,000 contractors by IR35 Shield, entitled ‘IR35 Road Ahead’, shows 52% of in-work contractors are yet to be assessed for IR35 [the legislation on disguised employment] while 23% of those in-work say their client has imposed a blanket ban on limited company contractors. Nearly a third were confident that they will stay with their current client after April.
The survey also shows that 52% of firms are using HMRC’s CEST tool to determine IR35 status, but 41% say they will dispute an ‘inside IR35’result.
Other findings include that 65% of contractors will avoid ‘inside IR35’ contracts and 72% will increase their rate.
The survey also found that many hiring firms and agencies have sought to circumvent their compliance requirements by offering contractors alternative engagement models, such as an umbrella arrangement. While 62% have been offered to trade via an umbrella, only 8% are happy to do so and 61% say they would not apply for an ‘umbrella only’ contract.
Since April 2020, agencies have been legally required to provide each worker with a Key Information Document (KID) as part of the Government’s efforts to tackle tax avoidance schemes, often operating under the guise of umbrella firms, with the aim of providing transparency around pay. Yet the survey suggests a lot of confusion around IR35, with
86% saying they weren’t provided with a KID for their last contract and 67% not even aware what a KID is.
Many respondents had been assessed using CEST despite HMRC’s tool attracting much criticism and 75% of respondents saying they believe CEST to be inaccurate – only 2% said they trust the tool.
Dave Chaplin, CEO of IR35 Shield, said: “We have just a few months until Off-Payroll takes effect in the private sector and it seems that half of the market is leaving compliance until the very last minute. This is likely to cause some severe repercussions for hirers and contractors. Our survey tells us that those firms that use CEST to conduct status assessments or apply blanket rules to negate their compliance obligations will encounter considerable disputes and recruitment struggles with many going to the back of the queue when contractors are deciding on their next contract.
“Blanket bans on limited companies are an expensive way for firms to hire less talented professionals, whilst handing a competitive edge to their competition. Firms need to realise that if they apply best practice and with the correct contracts in place, they can continue to hire the best contractors with confidence.”