Post IR35 reform: Work to do but contracting isn't dead

Nearly 2000 contractors have offered a range of insight into the contracting landscape after the initial impact of the introduction of IR35 reform in the private sector in April 2021.

This research, by contractor tax specialists, Qdos, serves as a stark reminder to businesses about the work that still must be done to ensure compliance and retain contractors.

The research does also signal that contracting outside IR35 has not been wiped out by the reform, with one-third of contractors assessed as outside IR35 - a figure that Qdos expects to increase as the 'dust settles' on the changes.

Reform

In April 2021, following IR35 reform, medium and large businesses became responsible for determining the IR35 status of contractors. The liability shifted from the contractor to the fee-paying party in the supply chain. These changes mirror public sector reform enforced in 2017.

The key trends and stories to emerge from Qdos' research are:

• Two-thirds of contractors (65 per cent) have been assessed inside IR35, one-third outside (35 per cent).
  
• Half of contractors may challenge client's IR35 decisions (39 per cent 'will', 11 per cent 'might').
  
• Only half (56 per cent) of those assessed are sure they have received a Status Determination Statement (SDS) from their client, despite this being a legal requirement under the reform.
  
• The biggest group (38 per cent) of contractors had their status set via CEST (HMRC's IR35 tool), with 25 per cent having had an independent specialist decide their status. Just four per cent had their IR35 position decided by a third-party automated IR35 tool/technology.
  
• Two thirds of contractors are either not very confident (40 per cent) or not at all (25 per cent) confident that businesses will be able to manage IR35 reform.
  
• Nearly two in three were told by their clients they can/must work via an umbrella company (where IR35 doesn't apply).

Dust settles

Seb Maley from Qdos said: "I'm not surprised that there's clearly still work to be done and contractors aren't convinced that reform is manageable. But even so, whichever way you look at it, contracting isn't dead - nor will IR35 reform spell the end to working in this way.

"And I've no doubt that as the dust settles, more businesses will get to grips with the changes, reverse needless contractor bans and compliantly engage contractors outside IR35.

"Reform has landed but that doesn't mean it's job done for businesses. Half of contractors might challenge their IR35 assessment, while a similar number aren't sure if their client has provided them with a Status Determination Statement despite it being a legal requirement.

"Firms need to remember, preparing for IR35 reform was phase one. Phase two - which we have now entered - is ensuring compliance going forward."