The UK government’s controversial changes to contractor laws – known as IR35 – is causing a saga that seems set to keep going for years to come. The changes, which are supposed to force contractors to pay income tax and national insurance contributions in the same way as full-time directly employed staff, have faced resistance from the start.
The changes mean that it is now the responsibility of the companies hiring contractors to assess whether these workers fall “within” IR35. As a result, many organisations have decided to be better safe than sorry and declare all of those workers as being within IR35 on a “blanket” basis.
The problem for contract workers – a particularly large source of talent in the technology industry – is that they are forced to pay higher levels of tax without receiving benefits such as holiday and sick pay. Contractors typically get paid higher day-rates, with the trade-off being that they do not have access to the stability and benefits provided by full time employment.
IR35 was due to be updated on 6 April this year, which had led to many businesses applying the “blanket bans” on the use of personal service companies – the type of contractor which falls within the IR35 rules.
Of course, by 6 April this year, the effects of coronavirus were well underway. The UK government, as part of its unprecedented package which included the furlough scheme, said that it would delay the introduction of the changes until 6 April 2021.
Chief Secretary to the Treasury Steve Barclay said at the time that the delay was because of the coronavirus pandemic. Barclay also said the delays were just that – a delay, not a cancellation. “This is a deferral, not a cancellation, and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company, pay broadly the same tax as those employed directly,” he said.
Insurance and tax specialist QDOS Contractor said that this delay came as a “relief” to “hundreds of thousands of contractors and the recruitment agencies and businesses that engage these workers.”
Return to form
And according to research carried out by QDOS, the delay has had an immediate impact. The company surveyed over 1000 contractors, 52% of whom had been assessed as inside IR35 by their engager. The majority of those surveyed said they expect to return to outside-IR35 working, while 27% of contractors are unsure of what to do and 17% said they will continue to work in their existing arrangement.
According to QDOS, this “reflects the concerns independent workers have over the accuracy of the determinations made by private sector business in anticipation of the expected April 2020 roll-out”.
It seems, however, that companies which had issued blanket bans to avoid potential IR35 penalties have started to rethink their strategies. Some firms, QDOS says, have reversed decisions to “blanket-place contractors inside IR35 regardless of their working practices”.
According to the research, 40% of contractors said they had been blanket-assessed as being inside IR35 by their clients – but 32% of that group said their client has already changed their minds. QDOS claims this is likely because hiring organisations know they won’t be responsible for deciding IR35 status until next year – but says that for now, the u-turns are a positive sign for contract workers. What matters next, the research says, is whether others follow suit.
We can help
RedCat Digital has been working with technology contractors and clients for many years and understands how the changes will affect both workers and companies. We can build bespoke offerings to help navigate the challenges that the new IR35 regime presents, and get companies ready for when the rules come in.