IR35 Reform: Why Contractors Need to Act Now

IR35 Reform_ Why Contractors Need to Act Now

From April 6 2021, responsibility for assessing the employment status of off-payroll workers will shift from individuals to their hirers. All companies — apart from those with fewer than 50 employees or less than £10.2m annual turnover — will need to comply with the changes. Judging by the fallout from reform in the public sector three years ago, contractors need to prepare now for the changes ahead.

The rule change will affect about 230,000 contractors in the UK. Although they will no longer carry the liability, limited company contractors are likely to face issues as many end-clients attempt to reduce risk. Firms and recruitment agencies will become liable for unpaid tax if HM Revenue & Customs finds a worker has been wrongly classified. This has already resulted in blanket IR35 determinations as well as outright bans on limited companies.

The changes were scheduled for 2020, however, Covid-19 led to an emergency delay barely a month before implementation. In the lead up to reform, it was clear that end clients were adopting the same blanket strategies that were seen in the public sector in 2017. Companies including Deutsche Bank, Lloyds and Reuters were among those to introduce the blanket policy. Although some suspended their decisions following the delayed implementation, it’s almost certain that they will revert to these as April 6th draws closer.

While the reforms require companies to take “reasonable care” in making IR35 assessments, there’s a grey area in the legislation that allows for multiple contractors working on a project in equivalent roles to receive the same determination, without considering the particulars of their individual contracts. In the case of limited company bans, the government has simply attributed this to the way in which individual companies choose to engage contractors.

The Lords Review found serious flaws in the legislation, while an amendment to the Finance Bill to delay reform in favour of finding a fairer alternative enjoyed widespread cross-party support. Despite this, the amendment failed when it was revealed that the Prime Minister and the Chancellor had intervened to ask MPs not to vote for it. This leaves many major issues unresolved for private sector implementation.

HMRC’s online assessment tool, CEST, is another stumbling block, with tax experts warning that it is flawed. HMRC recently made some changes to the tool and stand by its verdict providing it is used in line with its guidance. However, numerous tribunal cases show that CEST cannot be relied upon.  Only last year the NHS was handed a £4.3million tax bill for inaccurate IR35 determinations made using CEST, showing that HMRC will by no means stand by assessments delivered by its own technology.

The reforms being rolled out in April are likely to hit companies who are heavily reliant on contractors, such as financial services, construction, pharmaceuticals, energy and recruitment. Large FTSE 100 companies will come under scrutiny, and are unlikely to risk the significant sums involved should hundreds of contractors be found to have been wrongly classified. The risk is particularly high in heavily regulated sectors such as banking, where contractual workers may be subject to higher levels of direction and control.

In addition to introducing the blanket policy, there have been many instances of contingent workers being asked to sign new contracts with reduced hours and rates from which employers’ NI is also deducted. Meanwhile, being classified as employed for tax purposes does not give contractors the same rights as employees. This means that although contractors are at risk of exploitation, there is little recourse, with the reformed legislation deferring IR35 status disputes to a “client-led” process that’s unlikely to be in the contractor’s favour.

An IPSE study showed that a third of contractors were considering leaving the sector for permanent employment due to the reforms, however Covid-19 means that there are substantially fewer permanent roles available. It’s expected that the need for contingent staff will gradually rise. This is because companies still need to move forward with projects, while keeping overheads low and flexible in an uncertain marketplace. Sectors such as IT, renewable energy, healthcare and education are already seeing hiring growth, and there will be increasing opportunities for contractors in adversely impacted areas to transfer their skills to emerging areas of the market.

What’s important is that contractors act now to ensure that they are protected from the fallout of reform. Amaze Umbrella’s service has undergone rigorous assessment to attain FCSA accreditation, giving you a fully compliant IR35 solution. Our service also offers benefits of employment that permanent staff receive as well as Perkbox* benefits, insurance cover and a seamless onboarding experience from our first-class customer service team. To speak to a member of the Amaze team see here.

*Perkbox services are available to contractors paying the qualifying service fee. Please contact us for information.

Previous Post

Amaze Celebrates FCSA Re-accreditation

Next Post

Kay Adams & Eamonn Holmes will Fight HMRC at IR35 Appeal