Most contractors 'go it alone' on IR35 status

Two out of three (63 per cent) of UK contractors could be at risk of operating in a non-compliant manner and face the prospect of a hefty tax bill because their IR35 status is not being professionally verified according to Brookson.

Seven hundred UK contractors were independently surveyed by freelancers' website, UKTECH, on behalf of Brookson, provider of accountancy, tax advice and other support services to contractors. Among the findings of the survey are:

• 50 per cent of UK contractors are not seeking professional advice on their IR35 status, instead choosing to assess their own compliance
  
• 13 per cent of UK contractors do not bother to check their IR35 status at all.

Only one in four contractors (27 per cent) use a specialist accountancy or legal service provider to verify their IR35 status.

While some contractors follow IR35 changes and issues in great detail, for many it is impossible to keep abreast of all the technical and case law changes which affect employment law status on a regular basis. For those, professional advice is essential.

Cause for concern

Martin Hesketh, managing director of Brookson, said: "The figures uncovered by the survey are a definite cause for concern and could be blamed partly on the MSC legislation introduced last year. Under the old regime, service providers could ensure that their customers underwent an IR35 assessment. In the new world, all that service providers can do is advise customers of the risk of not having one done.

Martin Hesketh "Despite the huge legislative shifts the contracting industry has experienced in recent times, the IR35 legislation remains key for self employed contractors in determining employment status.

"The recent Dragonfly hearing at the High Court, as well as HMRC's announcement that it is to crack down on expenses dispensations offered by some umbrella organisations, clearly demonstrate that the Treasury and HMRC are keeping a close eye on our industry and will crack down on non-compliant businesses and contractors.

"Our survey also found that around 10 per cent of UK contractors are turning to more traditional high street accountants to check their IR35 status and we would also advise caution for this approach too. While it is positive that they are seeking professional advice, many accountants do not have the necessary expertise or experience. IR35 is an assessment based on employment law, not on tax law or accountancy rules, therefore an employment lawyer is best placed to offer advice.

"This area of law is constantly shifting and we would argue that the time and cost commitment required to maintain the level of specialism required in this area is perhaps beyond many high street accountants.

"Brookson worked closely with HMRC to agree our IR35 processes and procedures and ensure the compliance of our contractors and we work in partnership with our legal team at DWF LLP Solicitors to verify the compliance of all our contractors. We would urge all contractors to ensure they have obtained robust and documented professional advice for each of their assignments or risk a hefty tax bill."

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UKTECH would like to thank those who took part in this survey. There were 700 responses which provide a good basis for analysing the market-place. More results will follow.