By this time next week, controversial new IR35 rules will have come into force in the public sector. Meanwhile, new findings from ContractorCalculator reveal that half of the 5,000 contracting professionals who have so far undertaken its own online employment status test are being caught by IR35 and are facing major tax status issues as a result.
Thousands of contractors working via their own personal service companies (PSCs) are being affected by the changes. Fifty per cent of those who have taken ContractorCalculator’s online test – contractors working in a broad range of disciplines from nursing to IT professions – have found that they will be designated as inside IR35 and therefore liable to pay the same income tax and NICs as their salaried counterparts despite enjoying none of the statutory benefits that these taxes fund for permanent employees.
Of those who “failed” ContractorCalculator’s test, 58 per cent did so because they are not permitted to substitute. This immediately classifies these contractors as providing a personal service, which in turn makes it much more difficult for them to remain outside IR35.
Twenty per cent who failed the test did so because they are told how to do their work — the absence of autonomy is one of the core grounds under the new rules for including a contractor within IR35. The remainder were caught under the “mutuality of obligation” clauses: 39 per cent are not working on time-limited projects, 38 per cent are obliged to work a minimum number of hours and 29 per cent could be asked to transfer to an alternative project. Each of these scenarios indicate an exceptionally strong mutuality of obligation between client and contractor.
ContractorCalculator’s CEO and founder, Dave Chaplin, said that it was unsurprising over the last two months to find so many contracting workers being caught by the changed IR35 rules. Many of the contractors using ContractorCalculator’s assessment tool, he noted, are working in public sector bodies (PSBs) as social workers and nurses. Almost 100 of the latter have taken the test only to find that they are within IR35.
Dismissing HMRC’s Employment Status Tool as “unreliable,” Mr Chaplin urged hirers and agencies to explore other means of evaluating IR35 status or risk considerable tax liabilities on their balance sheets. He added: “The new reforms are already driving contractors out of the public sector into private sector firms who now have a significant commercial advantage to attract the best talent. The public sector is going to lose out all round.”
Umbrella Company group Unitum offers a free online IR35 self-assessment tool for concerned contractors. Developed by tax experts and approved by an experienced barrister, it is available here.