A leading consultancy that specialises in IR35 has revealed that nearly nine in ten contractors that have used its IR35 status checker service since the Off-Payroll rules were introduced were assessed to be operating on a self-employed basis.
Qdos Contractor, founded as a tax consultancy firm in 1988, launched their status review service for recruitment agencies and end clients hiring contractors under the Off-Payroll working rules as an alternative to HM Revenue & Customs’ widely lambasted Check Employment Status for Tax tool.
The published data showed that, of 9,000 individual contractors tested, eighty-seven per cent were found to be self-employed, or “outside IR35”. The results are significant because the Off-Payroll rules have led many end-clients to apply so-called “blanket” assessments and classify all of their contractors as “inside IR35” to mitigate their own tax risk. Under the rules, taxing a contractor as employed when they are working under self-employed terms and conditions is non-compliant.
The Off-Payroll rules, also known as IR35 reform, modify the application of IR35 by making the hirers of contractors responsible for assessing the IR35 status of the contractors they engage. Any contractors determined to be employed for tax purposes must have PAYE income tax and National Insurance deducted from their payments at source by the “fee payer”, which is usually their recruitment agency. Off-Payroll has been in operation in the public sector since April 2017. The rules were due to be rolled-out to the private sector in April of this year, but were postponed for twelve months at the last minute due to the Covid-19 pandemic.
Qdos CEO Seb Maley said: “Now, with less than a year until the changes arrive in the private sector, it’s vital that companies yet to start preparing do so [prioritise accurate status returns] immediately. Meanwhile, firms banning contractors, forcing them onto the payroll as a workaround to the changes, should rethink their stance on IR35 reform.”
A number of major hirers of contractors, including all “big four” banks, Vodafone and BAE systems, placed blanket bans on contractors in the run up to April, an indication of the apprehension that the rules have caused for hirers of contractors. Not only do the reforms place the burden of IR35 assessment upon end-clients, but should the end-client make the wrong decision, the supply chain is potentially liable for the tax risk.
In December 2019, Stephen Ratcliffe, a partner at multinational law firm Baker McKenzie, told HRReview that ninety per cent of contractors are caught by the IR35 rules. HMRC have said that they estimate that only ten per cent of people who are caught by IR35 actually pay the right amount of tax and National Insurance. The statistics revealed by Qdos may cast doubt on the accuracy of such approximations.
30th June 2020.