Contractors planning to work outside IR35 due to delay

More than half of contractors who have been assessed and deemed to fall within IR35 by their clients are planning on working outside of the legislation due to the delay of it being implemented in 2021 due to COVID-19.

Research from Qdos, who offer insurance and tax advice for the self-employed found that 56 per cent of contractors who fall inside of the IR35 rules will now go back to working outside of it due to the delay. Just over a quarter (27 per cent) are not sure whether or not they will start working within or outside of IR35 and 17 per cent will not.

For those who have been “blanket-placed” inside IR35 (40 per cent), a large amount of those contractors (32 per cent) have had this decision reversed by their client.

This comes after the Government announced it still intends to roll-out IR35 in 2021 despite the House of Lord releasing a report which “exposed the many flaws” of the legislation.

Jesse Norman, the financial secretary to the treasury indicated on the 27/04/20 in the House of Commons that the Government is still planning to introduce IR35 in to the Finance Bill 2020- 2021. Still, the amendment will need to be voted on and currently cannot be due to the lockdown.

On the same day, prior to  Mr Norman speaking in the House of Commons, the House of Lords released the report ‘Off-payroll working: treating people fairly’ which urges the Government to look in to the IR35 flaws, and that a decision should be made in six months whether or not to enforce the delayed reforms in the private sector in 2021.

Seb Maley, CEO of Qdos, said:

Thousands of contractors have had no choice but to work inside IR35 and therefore don’t trust the accuracy of their client’s decision, which determines if they pay tax as a self-employed individual or as an employee. To make matters worse, these contractors – a huge portion of whom are genuinely self-employed – don’t receive any employment rights despite being classed as an employee for tax purposes.

Those who feel they’ve been unfairly assessed or contractors who have had no choice but to work through an umbrella company or as an employee to keep their client, want to revert back outside IR35 – and I don’t blame them. But before working outside IR35, contractors must make sure their contract belongs there. It also goes without saying that a client has to agree to engage outside IR35 contractors once again too.

From a client or recruiter’s perspective, when reform is finally rolled out, as long as the contractor is engaged under the correct IR35 status, whether they work inside or outside the legislation shouldn’t matter. With one more year until the changes arrive, businesses that banned outside IR35 working now have a chance to rethink their strategy. That said, this time must be used wisely and preparations need to start now.

In order to gather these results, Qdos spoke to 1,000 contractors.