Background image for header strip

IR35 is no news, certainly not to anyone who has been contracting in the last decade. Since its introduction, it has been the subject of much criticism but has also received a number of updates.

The last major one took place in 2017 when the Government shifted the responsibility of determining a contractor’s IR35 status from the individual to the engager, across all public sector organisations (for a complete IR35 timeline, see this page).

The move has had wide-ranging negative effects, stalling major transport projects, and contributed to the NHS staffing crisis, not to mention the ramifications the legislation has had on many contractors to the public sector.

On the 6th of April 2020, these changes are set to be extended to the private sector.  The announcement in 2018 caused an uproar. There are a number of unresolved issues with the way the legislation works in the public sector, and it’s a widely held view that bringing it across to the private sector will be hugely damaging. It is estimated some 5.7 million businesses and two million contractors could be affected.

[Open the report in a new window (PDF)]

Outlook and impact

Considering the responses to our survey, the two sentiments that stand out are that there is a considerable level of concern about what the impact of the change will be and that there’s an air of defiance amongst the contractors. Many are looking, at the very least, to try to compensate themselves through renegotiated rates, and a considerable majority are looking to alter the delivery model of their business, or even move abroad. Very few are considering working inside IR35 or going permanent.

If contractors get their way and are successful in renegotiating their rates or alter their delivery models, the result is likely to mean an increase in cost for end clients. Both through a higher wage bill and increased administration costs. The question is whether that increase is something that can be offset against the comparatively lower cost of a portion of roles being converted to permanent employment.

Another factor to consider is the amount of risk associated with the end client’s responsibility to make the IR35 determination. If they, in good faith, using the Government’s own CEST tool, find contractors outside IR35, but the HMRC finds against them, they may be required to cover the resulting tax bill. As recently as October 2019, NHS Digital was hit with a £4.3m tax bill, following a number of IR35 status challenges by the HMRC.

The fact that seemingly many contractors who have been deemed in the clear by the Government CEST-tool are found inside IR35 in an audit is a major concern. The tool has been called not-fit-for-purpose from the beginning, and given the Government has done little to address its shortcomings, it’s no wonder that contractors have little confidence in its efficacy and accuracy.

The complexity and challenges, and no doubt risk have resulted in organisations introducing a blanket ban of contractors. RBS announced in October 2019 that it won’t accept any more contractors, and the ones already on the books will be forced to either accept permanent employment or work through umbrella companies. Other firms in the financial services sector that have introduced similar bans are Barclays Bank, HSBC, Lloyds Bank, and Tesco Bank.

So far, the Government has been steadfast in its position vis-a-vis the changes to IR35, but the calls to delay it are growing in number. The Confederation of British Industry (CBI), the Recruitment and Employment Confederation (REC) and the Association of Independent Professionals and the Self Employed (IPSE) were joined by The Institute of Chartered Accountants in England and Wales (ICAEW) in September, in calling for the Government to push the start date to April 2021, but so far it’s fallen on deaf ears.

Other factors that may impact the introduction of the changes are the impending election, scheduled for the 12th of December 2019, as well as the change in circumstances that Brexit might bring, should the U. K. eventually leave the EU.

To discuss the report and its findings, please get in touch with your Etonwood contact to arrange a call or meeting.

« Back to listings