More than half of UK businesses are considering taking a ‘blanket approach’ to forthcoming IR35 changes because they do not have time to assess cases on an individual basis, according to a survey of employers which raises concerns many are not sufficiently prepared for a new tax regime governing contractors.
The poll of 502 UK businesses found 59 per cent were considering a blanket approach to managing the legislation because they did not have time to assess contractors individually.
By comparison, just 41 per cent said they would not take this approach as they feared losing contractors if they were wrongly assessed.
The research, conducted by Brookson Legal for its report IR35: A Ticking Timebomb, also found a majority of businesses were confused about the potential implications of changes to off-payroll rules.
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Only 47 per cent of organisations said they had taken steps to understand the upcoming legislation and already knew the percentage of contractors that would fall inside IR35. Conversely, more than a third (38 per cent) said they were “relying on gut feel alone” when it came to IR35 and its impact on their business, and another 15 per cent said they had “no idea at all” how off-payroll rules would affect them.
The release of the poll coincides with the closure of HMRC’s consultation on the rollout of off-payroll rules to the private sector, which will come into force in April 2020.
The rules, which came into effect for public sector organisations in April 2017, will require employers to assess the tax status of all contractors in order to determine whether they should be taxed as an employee or not.
The rules were introduced by HMRC to create equity between employees and contractors by ensuring the same tax was paid by individuals who were effectively performing the same role.
However, problems with the rollout in the public sector, including with the government’s Check Employment Status for Tax (CEST) tool, have led to concerns over how the new rules will work in the private sector.
Brookson Legal’s research found almost three out of four (73 per cent) private sector employers believed IR35 would have an impact on the number of contractors they hire, of which 48 per cent said it would encourage them to reduce the number of contractors.
Similarly, 39 per cent said they expected there to be fewer contractors available to hire and a third (33 per cent) of employers feared they would lose skilled contractors because of IR35 – echoing the findings of a previous survey conducted by CIPD and IPSE last year.
Joe Tully, managing director of Brookson Legal, said that while businesses may see a blanket approach to IR35 as a quick fix, it should be avoided “at all costs”.
“Far from saving businesses time and money, this approach will lead to serious repercussions – leaving businesses wide open to increased cost, a wide-scale contractor talent drain, reputational damage and, in some cases, accusations that they have broken the law,” he said.
Tully added now was the time for businesses to put their IR35 house in order, and recommended employers undertake audits to illustrate they are taking “reasonable care” with their IR35 assessments.
Concerns were also raised by Andy Chamberlain, deputy director of policy at IPSE, who said the number of companies planning a blanket approach to off-payroll rules was “deeply alarming” and undermined the government's intentions.
“The government needs to hit the pause button. It cannot push ahead with the reform while there are clear indications that businesses will not be able to comply with the new rules,” he said.
Julia Kermode, chief executive of the Freelancer & Contractor Services Association, added the rollout to the private sector could impact on the economy and create a skills shortage at a time it could least afford it. UK businesses were still “very much uneducated and ill-informed about the changes that are coming their way,” Kermode said.
HMRC has previously told People Management that employment status for tax is determined by the contractual terms and conditions and the actual working practices of a contractor and does not affect the genuinely self-employed.
It has also said that CEST was “rigorously tested” and is accurate if used correctly.