The Impact of IR35

Matt Tyler, IR35 Consultancy Manager at Kingsbridge, discusses HRMC’s approach to IR35 and its implications for recruiters trying to fill roles.

New research from Kingsbridge amongst 1,200 contractors, recruitment businesses and end clients has revealed that, one year on from the IR35 reform, a lack of clarity around the new rules is continuing to impact the contractor market. Our data finds that the IR35 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.

In fact, the data shows that 71 per cent of contractors are only looking for outside IR35 roles this year. The problem is that outside IR35 roles account only for 41 per cent of roles on offer. This disparity between the roles contractors’ are looking for and those that are on offer is having a direct impact on the number of businesses working with contractors. In fact, over 70 per cent of businesses and recruiters are reporting that they have seen a reduction in their limited company PSC contractor workforce since the reform.

The Limitations of CEST

The perceived increase risk of greater tax liability is not the only factor contributing to the loss of contract labour. The Government’s Check Employment Status for Tax (CEST) is also hampering access to contractors. Recruitment agencies who reported that their end clients use CEST 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 told us they 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. So, how are recruiters responding to these changes?

Implications for Recruiters

Naturally, recruiters play a key role in determining the IR35 statutes of contractors as, ultimately, they hold the tax liability. But CEST does not promote collaborative assessments. This is a serious downfall and increases the risk of inaccurate determinations.

Our research, published in IR35-One Year On, reveals that half of all recruiters feel that end clients are not well prepared for IR35 reform. Clearly, further education is required to address the issues still being experienced. A better understanding of IR35 would be much healthier for the market as a whole. And let’s not stop here. There is more that can be done to avoid losing access to the skilled talent businesses need.

The Solution

Firstly, CEST must be made fit for purpose and take Mutuality of Obligation (MOO) into consideration.

Secondly, companies considering hiring experienced contractors outside of IR35 should utilise purpose-built tools, advice and insurance to mitigate against the perceived risks of hiring contractors.

A Final Word

HMRC was severely under-prepared for the private sector reform, and CEST simply isn’t fit for purpose. However, we are seeing some signs of positive change. Through educating the market, making CEST fit for purpose and using purpose-built tools, there is every chance that we can mitigate against the perceived risk of hiring contractors and improve access to this highly-skilled, specialist talent pool.

For more information about the research, download a free copy of IR35 – One Year On.

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