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Could IR35 sound the death knell for contracting?

Claire Anderson -Iridium

65% of contracts are being assessed as “inside IR35” but have companies really understood the risks of disputes and loss of digital talent?

In March this year, as the changes to off-payroll working in the private sector were looming, the Association of Independent Professionals and the Self-Employed (IPSE), which exists to protect and create a fair business environment for the self-employed, undertook a large-scale survey of 1,500 of its 16,000 members to discover the intentions of contractors following the introduction of IR35 come April. 

The results of the survey made stark reading for an economy heavily reliant on digital and IT sectors with an existing £60 Billion deficit in IT skills

A total of almost one-in-four (24%) respondents said they plan to seek contracts abroad
One-in-eight (12%) are planning to stop working altogether, 17% plan on seeking an employed role and 11% are planning on retiring within the next year. The changes in how the IR35 legislation was set to be applied into the private sector had an obvious effect, not just on the movement of IT skills from self-employed to employed – which 17% identified as their preferred option – but in a genuine loss of skill from the UK market. 

These survey results echoed the feelings of Iridium’s network. Dave Adams, Scrum Master and Project manager for Iridium, expressed his concerns: “For many, IR35 will be the death knell for their limited companies or contracting altogether.” 

These concerns were echoed by fellow Iridium associate, Rakesh Mottey, a long-term contractor in the UK, since 2006: “IR35 represents a drastic change and has had a major impact to the market and specialist resources, with contractors moving off the market or leaving the UK.”

An ‘Awful Lot’ of Contractors Are Being Classified Inside IR35
As we move into June, marking two months of IR35, further trends are emerging, particularly in respect to how companies are applying the changes to the legislation. The recently released results of the Qdos survey of 1,850 contractors, taken in late April 2021, has provided the first concrete indications of how contractors and businesses are reacting to the changes and how they are being implemented. 

Qdos found that 65% of contractors have been assessed by their hiring companies as employed for tax purposes (or inside IR35). 

Andy Chamberlain, Director of Policy at IPSE, expressed concerns about the proportion of contractors being classified as inside IR35, describing the figures as “an awful lot”. According to a recent article in the Financial Times, Chamberlain went on to say that “firms were classifying genuinely self-employed people as employed because they did not want to face investigations by the tax office.” 

Dave Nussey, project manager and Iridium associate said: “At this stage, it appears many organisations are protecting themselves as best they can by either using umbrella organisations or inside IR35 engagements, and this could have negative consequences on the quality of resource.”

With the marked changes in working practices following the dramatic impact of COVID-19, it seems doubtful that these figures reflect the true state of the contracting market, yet indicative of a private sector still unsure of how to accurately assess, on an individual basis, the status of the self-employed workforce. An article released in January 2021, by Spring Technology, asked “Has the necessary evolution of your workforce changed the results of your status determination status (SDS)?. It seems clear that movements to remote working and project-based delivery are potentially not feeding into the SDS process. 

The blanket approach impact
With the changes in 2019 around the dispute process for IR35, businesses need to consider the potential impact of using a blanket approach. In 2017, when the changes came into the public sector, contractors had the ability to transfer their skills to the private sector. With that option now closed, the trend seems to be clear. 

According to the Qdos survey, half (50%) of contractors plan to challenge their classification, suggesting that the reforms are likely to ignite a wave of disputes between businesses and contractors. Seb Maley, Chief Executive of Qdos voiced this concern: Reform has landed, but that doesn’t mean it’s ‘job done’ for businesses. Half of contractors might challenge their IR35 assessment, while a similar number may be unsure if their client has provided them with a Status Determination Statement despite it being a legal requirement.”

Anthony Seddon, experienced associate and cloud architect for Iridium, has a balanced view on the debate: I have mixed feelings on IR35. The shift in responsibility for who does the IR35 assessment has meant that some clients are doing blanket assessments to remove the risk they are now carrying. I’ve seen that first-hand in a recent public sector engagement, and it was incredibly disruptive for the programmes and the suppliers working on them, and led me to look for opportunities elsewhere, which in turn led me to Iridium…. As an independent consultant with specialist skills, I much prefer working to a statement of work, focused on outcomes, than the traditional body-shopping that was all too prevalent in some parts of our industry so I see any moves towards outcome-based engagements as a positive thing”

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