In IR35

A new study by the contractor tax consultancy Qdos Contractor has found that a large majority of independent contractors want employment rights if classified as “inside IR35”.

Last year’s reformed IR35 regulations transferred responsibility (and liability) for determining a contracting professional’s tax status from the individual freelancer to end clients and recruitment agencies. The change is widely expected to come to the private sector in the near future.

Stripped of their former power to determine their own IR35 status, large numbers of contractors are at risk of being unfairly forced inside IR35 by inexperienced public sector end clients, whereupon they become liable for employee-level tax instead of being taxed as independent self-employed workers. They will not, however, be entitled to any of the employment rights this tax pays for among salaried employees.

Qdos Contractor’s latest poll surveyed 1,500 freelancing and contracting professionals and reveals that the overwhelming majority favour being granted employment rights if netted by IR35:

  • 89% said they would like employment rights if made to work inside IR35
  • Just 11% said they would not

The following list itemises the rights contractors forced into IR35 would like to be granted:

  • 50% favour paid holiday leave
  • 23% favour pension contributions
  • 14% favour paid sick leave
  • One percent favour paid maternity or paternity leave
  • 12% favoured “other” benefits, although the majority said they would like “all of them”

Commenting on the findings, Qdos Contractor CEO Seb Maley said that there was a risk that the new IR35 regime could become “unsustainable” for freelancers:

“They are taking all of the risks associated with being a contractor but are losing the reward of having a higher day rate. They see the potential position of being forced inside IR35 as completely unfair.”

While the Freelancer and Contractor Services Association (FCSA) and Association of Professional Staffing Companies (APSCo) have both reported a rise in the use of PAYE Umbrella Companies by contractors in the public sector, other evidence indicates that a number of public sector bodies (PSBs) have sought to retain desperately needed contractors by advising them to raise their pay rates.

IT news outlet The Register, for example, found last year that many Whitehall departments had invited their contracting IT professionals to hike their fees by 20% to offset their increased taxation. They were responding to a serious tech skills shortage within the government, especially with the challenge of Brexit drawing closer. The National Audit Office estimates that Whitehall might need to spend £244m on contractors to offset its skills shortages.

After erroneously adopting blanket approaches, more PSBs are taking more judicious approaches based on case-by-case assessments, a policy strongly advocated by Qdos Contractor.

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