UK business ill-prepared for IR35 rule changes

With just three months to go before off payroll tax rules come into effect for the private sector, half of UK firms that hire contractors are not prepared for the changes, according to research by IR35 Shield

The assessment software supplier’s survey of some 3,300 contractors found that 52% of in-work contractors had yet to be assessed for IR35 by their employer.

Meanwhile, the survey findings suggest that fears around non-compliance have prompted many firms to introduce blanket ban measures instead of checking the status of workers.

Nearly a quarter (23%) of respondents reported their client has imposed a blanket ban on limited company contractors.

As a result, only a third of those polled are confident that they will remain with their current client after April, and 57% said at least half of contractors would likely leave their client due to IR35.

IR35 Shield said many hiring firms and agencies have sought to address compliance requirements by offering contractors alternative engagement models.

However, although 62% of survey respondents have been offered to trade via an umbrella, just 8% are happy to do so, while 61% said would not apply for an ‘umbrella only’ contract.

Three quarters of contactors (74%) claimed to be unable to distinguish between a compliant umbrella and a tax avoidance scheme, while 60% reported regularly receive marketing from schemes offering take-home pay of circa 85%.

Half of the respondents had been assessed by a client using HMRC’s check employment status for tax (CEST) tool, but 75% said they believe the online tool is inaccurate.

In response, the survey’s finding suggested 41% of contractors plan to dispute an ‘inside IR35’result, while two thirds (65%) said they intended to avoid ‘inside IR35’ contracts and 72% plan to increase their rate.

Since April 2020, agencies have been legally required to provide each worker with a key information document (KID), before the business reaches an agreement on terms with that person and before a contract is issued.

However, the survey found the majority (86%) of contractors have not been given this document, while 67% were not aware of what a KID is.

Dave Chaplin, CEO of IR35 Shield said: ‘Our survey tells us that those firms that use CEST to conduct status assessments or apply blanket rules to negate their compliance obligations will encounter considerable disputes and recruitment struggles with many going to the back of the queue when contractors are deciding on their next contract. 

‘Blanket bans on limited companies are an expensive way for firms to hire less talented professionals, whilst handing a competitive edge to their competition.  Firms need to realise that if they apply best practice and with the correct contracts in place, they can continue to hire the best contractors with confidence.’

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