A new poll has found that the overwhelming majority of contracting professionals would be deterred from working for private sector enterprises or recruitment consultancies that relied wholly on HMRC’s Check Employment Status for Tax (CEST) tool for determining their IR35 status.
The study, which was conducted by contractor tax advisor consultancy Qdos Contractor, questioned over 1,500 contractors and found that 81% have so little trust in the tool that they would be put off working for any organisation that relied solely on its determinations.
Most industry observers believe that a government extension of controversial public sector IR35 rules to the private sector is now simply a matter of time. This will, as in the public sector, transfer responsibility for making contractor tax and IR35 determinations from the individual freelancer, where it has conventionally rested, to the end client or recruitment business.
The effect on the public sector has been highly disruptive since the reforms were hastily imposed last April, with numerous contractors leaving the sector rather than being taxed as employees – even though they receive none of the statutory benefits associated with salaried employment. Others have been subject to blanket determinations, as public sector bodies (including the NHS) desperately sought to avoid liability for making an inaccurate IR35 determination.
Meanwhile, organisations such as the Freelancer and Contractor Services Association (FCSA) and the Association of Professional Staffing Companies (APSCo) have reported a steep rise in the use of Umbrella Companies in the public sector, as contractors abandon their limited companies to continue working flexibly.
Last year, research conducted by the online information portal ContractorCalculator found that CEST’s predecessor, ESS (Employment Status Service), delivered results at odds with UK employment laws in 27% of a sample of 21 already settled IR35 court cases. The website’s CEO, Dave Chaplin, described it as “error prone” and “not fit for purpose.” HMRC continues to vehemently deny these claims.
Commenting on the new research by Qdos, CEO Seb Maley said:
“All the signs point towards the announcement of private sector IR35 reform this year. So that 81 per cent of contractors would rather not work through a recruitment agency or for a client using only CEST poses a real threat to staffing in the sector.
“Question marks still remain over CEST’s reliability, and understandably, contractors do not want to be wrongly placed inside IR35 and therefore made to pay similar taxes to an employee, but without any of the benefits.”
Describing IR35 as “particularly complex tax legislation”, Maley urged agencies and private sector clients to re-evaluate how they are to make IR35 determinations, adding:
“After all, CEST is not mandatory and independent assessments are perfectly acceptable.”