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IR35 – Clients and Recruiters Must Act

Study suggests clients and recruiters must act ahead of IR35 reform

New research released by QAccounting partner, Qdos Contractor, strengthens the argument that the private sector must begin preparing for next April’s IR35 reform now if it is to be capable of successfully managing incoming changes to the legislation.

Contractors left in the dark

In an already tricky climate for contractors, the study, in which more than 1000 individuals working through personal service companies participated, showed that just 8% of these workers have heard from either their client or agency regarding IR35 reform.

With less than a year to go until controversial IR35 changes are extended, the fact that very few private sector businesses and recruitment agencies have reached out to the contractors they engage to discuss reform is a cause for concern.

Little optimism that changes can be managed

Because the vast majority of contractors have not yet received any contact from their client or recruitment agency, inevitably these workers are not convinced they will have their status set correctly when the rules change next year. 52% of the independent professionals surveyed are of this opinion, while 34% are unsure. Just 14% of contractors are confident end-clients and agencies can contribute to accurate IR35 assessments.

IR35 contract reviews hold the key

Nearly half (48%) of contractors believe an independent IR35 contract review must take place to make sure engagers decide tax status correctly. The reason for this view is most likely because IR35 contract reviews are carried out by experts who do not have a vested financial interest in the outcome.

24% believe that to ensure accuracy, the reasons factored into the IR35 decision should be passed throughout the supply chain. In theory, this would offer contractors greater clarity. It is also an idea HMRC proposed in the IR35 consultation, meaning it could well become a requirement.

22% of contractors say that by holding clients responsible for incorrect assessments, the better chance there is of having status set correctly. To an extent, these rules are already in place in the public sector, with the end-client becoming liable should HMRC decide ‘reasonable care’ hasn’t been taken.

However, following reports that blanket decisions continue to be made in the public sector,

IR35 experts are asking the question of whether HMRC is actually doing enough to deter end-clients from making incorrect assessments.

The remaining 6% of contractors believe private sector clients and agencies need to be better educated on IR35 before being able to make well-informed decisions.

Plans to challenge inside IR35 determinations

This research suggests that should a contractor feel as though they’ve been unfairly or incorrectly placed inside IR35 by their client, they will look to contest it. Above all else, this highlights how important it is that engagers prioritise well-informed assessments over risk-averse ones.

While on the face of it, this data paints a worrying picture, recruitment agencies and private sector clients do at least have time to get ready for the arrival of IR35 changes, which can in fact be managed.

Learn more about QAccounting’s range of IR35 services here.