More than two thirds (71%) of UK finance firms are considering taking a blanket approach to managing the new IR35 legislation, due to come into force in 2020, as they do not have the time to assess contractors individually, research by Brookson Legal has revealed
This is 12% higher than the 59% UK average and more than any other industry surveyed.
Ahead of new off-payroll working rules which come into effect across the private sector in April 2020, Brookson Legal research into the impact of IR35 found that 80% of finance businesses said that IR35 will have an impact on the number of contractors they hire – 7% more than the UK business average of 73%. Six in 10 said that the introduction of PAYE approach to contractors would force them to review the number of contractors they hire.
There have been criticisms of the speed of the rollout to the private sector, with the current consultation closing on 28 May, although HMRC issued guidance on how the rules would be implemented in early April before the feedback to the consultation had been reviewed.
A third of companies were concerned that the complexity of the rules would mean that workers would be wrongly placed inside or outside the IR35 rules, while changes to the tax status meant there was a risk of losing skilled contractors and freelancers; increased costs; and projects being delayed due to contractors leaving.
Nearly a third of companies were also concerned about the time it is going to take to review all contracts, as well as how the changes to employment status would be communicated with contractors.
Joe Tully, managing director of Brookson Legal, said: ‘The fact that 71% (way above the UK average of 59%) of finance businesses are actually considering doing this is shocking considering the well-publicised impact of this approach in the public sector.
‘Finance firms may see this blanket IR35 approach as a quick fix but it is anything but and should be avoided at all costs. Far from saving businesses time and money, this approach will lead to serious repercussions – leaving the finance sector wide open to increased cost, a wide-scale contractor talent drain, reputational damage, and, in some cases, accusations that they have broken the law.’
There is widespread use of contractors across the finance sector, many hired through personal service companies and currently outside the IR35 regime. The majority (90%) of finance businesses are concerned that all or some of their contractors previously not captured by IR35 will now be.
While half (51%) of these businesses have already reviewed their exposure to IR35 in terms of contractors and have taken steps to understand their exposure and risk factors, a third of those surveyed had taken no action as yet and were waiting to see how the rules bedded down.
Only 18% of respondents said that IR35 would not make any difference as contractors are vital for their businesses and only 3% expect to be taking on more contractors in future regardless of IR35.
Andy Chamberlain, IPSE deputy director of policy, said: ‘This research demonstrates exactly how big a mountain UK business has to climb to catch up with the off-payroll rules.
‘It is no surprise that clients haven’t spoken to their contractors about these impending changes, they simply don’t know what the new rules will be. We are all waiting to see the draft legislation and that will not be published until July at the earliest. What we have seen so far is too complex, totally unfit for purpose, and with so many variables that have not been decided.
‘I am at a loss how businesses are expected put processes in place in less than a year when HMRC fails to make correct determinations after 20 years. April 2020 is an unrealistic deadline – implementation should be delayed for at least another year.’
The Brookson Legal research conducted by Censuswide surveyed 502 medium and large-sized UK businesses with company turnover of £10.2m or more that hire contractors - IR35: A Ticking Timebomb report
By Sara White