Private Sector Must Prepare for IR35

The private sector must listen to contractors’ IR35 concerns and prepare

With the introduction of IR35 reform in the private sector a little over a year away, contractors have told Qdos they do not believe the companies they work with or the recruitment agencies they source projects through will be in a position to contribute accurately to IR35 decisions from April 2020.

After similar changes to the legislation were rolled out in the public sector in 2017, the responsibility for determining the IR35 status of contractors will soon fall on the medium and large private sector companies that engage them. It’s widely expected that these businesses will also hold IR35 liability - a figure that can amount to hundreds of thousands of pounds.

When recruitment agencies are involved in the process and handle the payments to contractors, it is likely they will carry the liability despite not being in charge of setting IR35 status. This is also the case in the public sector.

Specific details of the Government’s plans for next year’s reform are set to be published in the IR35 consultation, which will be released in February. However, given IR35 is a tax open to dispute, as the public sector experience has demonstrated, the overwhelming message coming from specialists, including Qdos, is that engagers should get to work on understanding it immediately.

Now, contractors have also shared their views…

That nearly 77% of 1400 UK contractors responding to a Qdos survey said they have zero or very little confidence that the private sector will be prepared for these changes will be concerning to the thousands of organisations that rely on these workers, for the skills and flexibility they provide. It will be just as worrying to the recruitment agencies that enjoy the consistent placement opportunities contractors offer.

A further 11% of independent workers reported to being undecided, while the number of contractors who believe their clients and recruitment agencies will be ready by April 2020 amounts only to 12%.

There are a number of reasons contractors feel this way. Many independent workers predict companies will make risk-averse IR35 decisions to protect their liability - something that continues to happen in the public sector despite reform being introduced almost two years ago.

Understandably, contractors also distrust CEST - the technology HMRC built and encourages companies to use when assessing IR35 status. Since its arrival just before public sector changes, decisions provided by the tool have been overturned in court, while the software fails to take into account keys aspects of the legislation, such as Mutuality of Obligation (MoO).

With or without CEST, a number of independent workers told Qdos they believe private sector engagers’ lack of IR35 expertise will ultimately lead to incorrect decisions when reform lands next year. They also think end clients (61%) will be better placed to contribute to accurate status decisions than recruitment agencies (39%).

Whether these statistics will serve as a further incentive for agencies to put processes in place early to ensure they are capable of contributing to well-informed IR35 decisions remains to be seen. It is, however, in a recruiter’s best interests to ensure contractors have their status set accurately from April 2020 onwards. After all, there is a strong likelihood that agencies will carry the liability when operating as the fee payer.

It would be unwise for engagers to ignore IR35 changes and assume that contractors will settle for being placed inside the rules without a fair assessment of their status. These workers told Qdos that working outside IR35 matters most when considering an opportunity. The respondents also said they would either increase their rates to account for the significant cost of working inside IR35 or leave the contract altogether. This should make any engagers that might be preparing to place independent workers inside IR35 automatically to think again if they want to continue working with them.

While these statistics are somewhat concerning, they are not a reason to panic. There are a number of steps direct engagers and recruitment agencies can take to ensure they are ready to play a role in making accurate IR35 decisions - a capability which will be core to being able to attract independent workers now and in years to come.