Lack of preparation for IR35 tax reform in the private sector will put UK businesses at risk of a significant contractor talent drain, according to a survey of 500+ contractors by Brookson Legal. If assessed to be caught inside IR35 and told to pay employment taxes by the businesses that hire them, more than half of the skilled contractors surveyed by Brookson Legal (59 per cent) said they would consider seeking alternative work with another business. Just under a third (30 per cent) confirmed that they would consider stopping contracting altogether and one in eight would consider retiring (14 per cent) or moving abroad (13 per cent).
Half (50 per cent) also said that they would ask for a pay increase and employee benefits if assessed as being inside IR35, suggesting that companies who wish to retain the talents of the contractors deemed to be ‘disguised employees’ may be faced with increased costs.
Businesses also face risks from wrongly categorising thousands of genuinely self-employed contractors within IR35. Over a third (37 per cent) of respondents said they would never consider going on-payroll and one in five (21 per cent) would challenge an inside IR35 decision. Over half (53 per cent) believe that the changes will deter people from becoming contractors in future.
The report, Avoiding an IR35 talent drain, has been published by Brookson Legal with six months to go until the off-payroll working rules come into force in the private sector in April 2020. Based on a survey of 516 contractors, it reveals the concerns of the UK contractor workforce and the actions they may take if the businesses that hire them do not take reasonable care when it comes to their IR35 assessments. It also includes the views of four contractors currently working in sectors that rely heavily on a flexible contractor workforce: IT, construction, energy and utilities.
“The fact that 59 per cent of contractors would consider moving to another business if found to be inside IR35 shows how important it will be to get these complex assessments right,” said Joe Tully, managing director of Brookson Legal. “The outcomes will not only impact contractors’ way of life, they have operational and financial consequences for businesses too.”
The latest Brookson Legal research also revealed that there is still a confusion as to where the responsibility for IR35 lies, with 37 per cent of contractors thinking that it lies with them post April 2020, and 23 per cent admitting they don’t fully understand the changes.
“Businesses should be making IR35 assessments an urgent priority and ensure they take reasonable care when looking at an individual’s circumstances,” Tully continues. “Not doing so could cause further complications down the line, including challenges from contractors and falling foul of HMRC. Coming to a fair and just conclusion of a contractor’s IR35 status, on the other hand, allows the business to move on and look at the best next steps for their flexible workforce.”
Joe Tully concludes: “When we surveyed UK businesses earlier this year, our research found that, on average, hirers think it will take them around six months to get ready for IR35. That deadline is here, but there’s still time to get IR35 ready if companies start to take action immediately. If they don’t, they risk alienating and potentially losing their valued contractor workforce.”
To find out more about the IR35 research amongst UK contractors and to download a copy of the Brookson Legal report Avoiding a contractor talent drain.