Sunday, June 16 2024

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IR35 Impact

One year on, it is clear that the confusion following IR35 reform is stifling access to specialised talent. New research amongst contractors, recruiters and end clients by Kingsbridge Contractor Insurance, demonstrates that the reform has had a dramatic and inhibiting effect on businesses’ willingness to hire contract labour. This is making it much harder for recruiters to place inside IR35 roles.

The data shows that 71 per cent of contractors surveyed are looking only for outside IR35 roles over the next 6 to 12 months, yet these account for less than 41 per cent of roles on offer. In addition, 66 per cent of contractors would not even consider inside IR35 roles, which can increase the risk of greater tax liability.

Tellingly, over 70 per cent of businesses and recruiters reported that they had seen a reduction in their limited company PSC contractor workforce.

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The research reveals that CEST is also contributing to the loss of contract labour. Recruitment agencies who reported that their end clients use CEST appear to have seen a larger reduction of limited company contractors engaging in providing services compared to independent tool users. In fact, 38 per cent of the respondents whose end clients use CEST have seen a 61 per cent or greater reduction in their contractor pool, compared to just 23 per cent of those who use independent employment status tools.

70 per cent of end clients have adopted a collaborative approach with their recruiter to determine the IR35 statuses of their contractor base. This demonstrates the key role recruiters play in determining status as they ultimately hold the tax liability. Interestingly, however, recruiters whose clients use CEST were the least likely to be involved.

Where the recruiter is not involved in the process, they could be blindly accepting liability as the fee payer. This is one of CEST’s key downfalls as the tool does not promote collaborative assessments, which increases the risk of an inaccurate determination.

The research, which is the focus of a new whitepaper, IR35 – One On, reveals that 50 per cent of recruiters felt that end clients were still not well prepared for IR35 reform in the private sector, suggesting that further education is required.

Despite this, recruiters are cautiously optimistic, with many predicting fewer bans in the future and end clients making U-turns on their initial blanket ban decisions.

Significantly, independent employment status tool users have seen more blanket ban U-turns from their end clients than CEST users (44 per cent versus 26 per cent), thereby increasing their access to contractor talent.

“HMRC was severely under prepared for the private sector reform, and CEST simply isn’t fit for purpose,” notes Andy Vessey, head of tax at Kingsbridge Contractor Insurance. “However, there are some signs of positive change. There are more U-turns on blanket bans and contractors are optimistic about their future job prospects.”

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