Major IR35 Study Reveals Rife Non-compliance and Confusion

12th March, 2020
By 12. March 2020IR35, News

A major study by a leading industry body has concluded that rife non-compliance with the off-payroll reforms is killing off the UK’s flexible workforce, which could have a devastating impact on future business. The study surveyed more than 12,000 contractors to gain insight into the impact of the reforms, making it the largest survey to date of the flexible workforce and IR35.

Despite Status Determination Statements being a legal requirement, the study found that 62% of contractors say their clients haven’t provided them with one. This is largely down to the fact that businesses aren’t confident enough to carry out determinations that will make them liable for the correct tax deductions. Subsequently, 26% of companies have imposed non-compliant policies that blanket contractors inside IR35.

While HMRC continues to downplay the issue of blanket assessments, the resulting fall-out means that over 50 per cent of contractors no longer see contracting as a viable working model. The survey found that 52% of firms are losing at least half of their contingent workforce because of IR35 reform; 23% plan to quit contracting altogether, and 21% intend to change career.

68% of contractors reported that they weren’t even involved in the status assessment process and subsequently felt that the process was unfair. Meanwhile, 62% have not been provided with reasons for their status outcome, despite this being a requisite of an SDS. 58% of clients are accused of not adhering to ‘reasonable care’ and there’s also some confusion regarding this provision. For example, while CEST is used by 53% of clients to conduct assessments, its well documented flaws mean that only 3% of contractors trust its accuracy.

A combination of blanket assessments and the use of CEST has meant that only 27% of respondents to the survey have secured an ‘outside IR35’ decision. This is far fewer than HMRC’s forecast in which they previously estimated that roughly two-thirds of workers should be outside the scope of the rules. There’s also an indication that only 1% of contractors have successfully managed to overturn their status determination as a result of HMRC’s ‘client-led status disagreement process.’ In fact, 27% of contractors have been told that they’re not allowed to dispute their status. In cases where they’ve done so, many contractors have had their contracts terminated.

In addition to forcing contractors into false-employment, contingent workers are being subjected to effective double taxation. 45% of contractors have been told that being ‘inside IR35’ means employer’s NICs are to be paid out of the contract rate. Of contractors deemed ‘inside IR35’, a massive 79% say employment taxes are being deducted from their rate. This is contrary to the Off-Payroll legislation and the Social Security Contributions & Benefits Act 1992, which requires that the ‘fee-payer’ pay this sum on top of the rate. In addition to the double tax hit, an ‘inside IR35’ determination also prevents contractors from claiming the travel expenses necessary for long distance contracts.

The survey also highlighted the serious disparity over workers’ rights that was recently debated in the Lords Inquiry with regards to the government’s Good Work Plan. 93% of respondents believe that contractors should receive some degree of employment rights if they’re deemed ‘employed for tax purposes’. The poorly thought out legislation means that in certain cases worker rights will actually be removed by re-classifying contractors as employed. For example, self-employed women pay national insurance contributions, which then entitles them to claim for statutory maternity pay. However, under the new rules, they’re not entitled to claim.

58% of contractors indicated that they’d be willing to pursue a claim for employment rights via an Employment Tribunal. Recently, a new campaign “force” has been set up specifically for limited company workers who are banned or blanket assessed under IR35. The Self-Employed Alliance (SEA) says it will be fighting on behalf of “largely undefended” contractors to “halt” the April reform, pending a “radical rethink” by government to end the “War on Contracting.”

The upshot is that many non-compliant firms are experiencing a contractor exodus. When asked about contractor retention at their most recent client company, 27% estimated that roughly 50% of contractors had left their engagements in response to the off-payroll legislation, while 23% plan to quit contracting as they see long term complications. Ironically for HMRC, actions intended to increase tax revenue look set to impact the public purse, with 41% of respondents claiming that their clients had moved at least some work offshore as a result of the reforms.

This content has been supplied by IR35 Guru.

If you’ve been affected by the Off-Payroll reforms, or if you’re unsure about your employment status, ContractingWise has a range of options to help you keep your contracting career on track. To talk to a member of our team, call: 0203 642 8679