Talent drain brought on by IR35 for contractors as more than half consider looking for other work

The introduction of IR35 to the private sector in April 2020 could lead to a significant contractor talent drain, as more than half would consider looking for alternative work with another business if they fall within the remit of IR35.

The report published by Brookson Legal, the only regulated law firm that focuses on IR35, called ‘Avoiding an IR35 talent drain’ found that 59 per cent of contractors will think about looking for different work with another business if affected by the tax reform in the private sector.

As well as just under a third (30 per cent) saying they may stop contracting completely, 14 per cent would consider retiring and 13 per cent would move abroad.

Half (50 per cent) said they would ask for a pay rise and employee benefits if affected by IR35, implying if companies wish to hold on to their contractors it will cost them.

There is also a fear from contractors that IR35 will impact them unjustifiably as 21 per cent of them would challenge an IR35 decision and 37 per cent of them would never consider going on-payroll.

Also, more than half (53 per cent) believe this tax reform could deter people from becoming contractors in the future.  With only 3 per cent holding the opinion that the private sector will be ready when the new rules are implemented.

Just under nine-tenths (83 per cent) have not been engaged in talks regarding IR35  by their company even though 80 per cent said they are likely to work with a company that has proper IR35 policies in place.

Confusion still remains in the contracting sector regarding IR35 as 37 per cent of them think that it lies with them after April 2020 and 23 per cent do not understand the changes.

Joe Tully, managing director of Brookson Legal, said:

The fact that 59 per cent of contractors would consider moving to another business if found to be inside IR35 shows how important it will be to get these complex assessments right. The outcomes will not only impact contractors’ way of life, they have operational and financial consequences for businesses too.

Businesses should be making IR35 assessments an urgent priority and ensure they take reasonable care when looking at an individual’s circumstances”, Joe Tully continues. “Not doing so could cause further complications down the line, including challenges from contractors and falling foul of HMRC. Coming to a fair and just conclusion of a contractor’s IR35 status, on the other hand, allows the business to move on and look at the best next steps for their flexible workforce.

This report is based on the findings of a survey which asked the opinion of 516 contractors.