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Businesses not ready for IR35 reforms

Businesses not ready for IR35 reforms

An independent study has looked into market opinion in the light of the last IR35 consultation, which closed last month. The research attempted to gauge business readiness for next April’s private sector reforms when private sector clients will become responsible for IR35 assessments.

With the changes only a few months away, the research revealed deep concern and confusion amongst businesses regarding the implementation of the new rules. One of the major causes of anxiety is around time and resources it will take to assess each individual contractor. This concern is worsened by the persistent problems and insufficient guidance surrounding CEST, the government’s self-assessment tool. Widespread problems with the tool’s unreliability have led to an increase in tax tribunals in the public sector, and a marked increase in public organisations using blanket assessments.

Rather than address recurrent key issues with IR35, the government have continuously responded to consultation feedback by glossing over and ignoring growing concerns. A recent investigation found that this had led to many public sector organisations such as Network Rail and the Met Office using non-compliant assessment methods, which were never-the-less upheld by HMRC.

With no clear method of disputing assessments, this has left contractors in a dire situation, and many have chosen to leave the public sector for good. There are understandable fears that, given the government’s lack of acknowledgement of the problems, there will be a repeat of these issues in the private sector. The study found that:

  • 45% of businesses have not taken any action to prepare for IR35
  • 59% are considering a blanket approach
  • 48% say IR35 will encourage them to reduce the number of contractors that they hire

This presents worrying news for contractors, who look set to bear the brunt of the confusion. For many, the risk of being incorrectly assessed, which results in a 20-25% drop in take-home pay, will encourage them to leave contracting for full-time employment. The fact that the government refuses to consider the issue of their employment rights in line with recommendations made by The Taylor report makes them increasingly vulnerable to exploitation. The survey revealed that:

  • 92% of contractors have not been contacted by either their client or agency regarding IR35 reform
  • Only 14% of contractors have faith in clients and agencies to contribute to accurate IR35 decisions.
  • 86% of contractors would challenge ‘inside IR35’ decisions made by their clients.

As businesses wait to see the draft legislation there’s growing concern that there won’t be sufficient time to prepare for the changes. The fragile state of the economy in the wake of Brexit discussions means that further disruption to the business sector could have a serious impact. Andy Chamberlain, IPSE’s Deputy Director of Policy, commented: “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.”

Changes in the private sector will mean that from April next year the responsibility for determining employment status will transfer from the contractor to the private sector organisations hiring them. Keep informed by reading our regular news updates and our overview of IR35.

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