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84% believe IR35 changes will restrict innovation, Harvey Nash finds

A new report reveals confusion still reigns around IR35 legislation among both contractors and the businesses that rely on them.

The 2019 Harvey Nash IR35 Survey, which interviewed 1,200 businesses and contractors, demonstrated that over four in five (83%) of businesses believe IR35 impacts negatively on their industry. Meanwhile 60% of contractors say they have experienced increased anxiety, stressing or worrying about how the new rules will affect them.

Concerns are deepened further by the lack of an Autumn statement to confirm the details on the new regulation, which is to be extended to the private sector in April 2020. The Harvey Nash report unearthed significant confusion among businesses about their responsibilities, with 42% believing it was the contractor’s responsibility to understand whether IR35 applies to them.

Over half of private sector businesses (56%) admitted they don’t feel prepared for the revised IR35 legislation, and 87% believed HMRC is not doing enough to support the transition. Of those businesses who said they are preparing for the change, 22% said they may stop using contractors altogether after April 2020, shrinking the job market for contractors, pushing them towards permanent roles or seeking alternative opportunities abroad, outside of IR35 rules. 

When it comes to the wider business landscape, 88% of those surveyed said they feel IR35 will have a negative impact on the UK economy, 91% say it will damage productivity, and 84% believe it will restrict innovation. At a time of great political and economic uncertainty, it seems IR35 is viewed as an additional and unwelcome spanner in the works by both businesses and contractors.

Colin Morley, professional services director at Harvey Nash, commented, “This insight from both contractors and private sector businesses points to a perfect storm on the horizon. Both sides in the contractor-client relationship will be affected. Contractors need to establish their status and take the necessary steps to secure their livelihood, while businesses need to make their IR35 strategy crystal clear to their contractors.”

Almost one in five (17%) contractors said they will have to increase their fees to cover the rise in taxes, which could be as much as 30% if the business they work for moves them to the PAYE system. This could have a knock-on effect for businesses, increasing their budgets for projects reliant on contractors for delivery. One in ten contractors is considering seeking a permanent role as a result of the immanent change. 

Contractors also cited doubts around whether HMRC is taking the potential drain of contractor resources seriously enough. One third said they needed more information about IR35, yet only 5% said they would rely on HMRC to obtain this. Almost a quarter (22%) said they would ask external experts for advice, while one in five (21%) would rely on their industry press. Of those contractors who have used HMRC’s online tool, CEST (Check Employment Status for Tax) over half (54%) said it was not useful or accurate. It seems therefore that contractors have serious concerns about the damaging impact IR35 could have on their livelihoods, yet have lost confidence in HMRC’s ability to provide accurate and timely information. 

Will Jones, director of portfolio solutions at Harvey Nash, said, “As organisations navigate the unfamiliar territory of the 4th industrial revolution, speed and agility are key to carving out a competitive advantage. The contingent workforce is more crucial than ever in providing them with the agility to adapt to the rapidly changing digital environment. At a time when Government should be doing everything it can to support British business, the feedback from respondents is that HMRC is not doing nearly enough to smooth the transition. What we need now is for HMRC to help us all by giving clear and precise guidance to remove ambiguity.”

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