IR35: Seven out of ten UK contractors will leave or charge more
A new survey of more than 2,700 contractors reveals just 14% will accept an inside IR35 decision, raising fears that UK companies could be on the verge of a massive talent exodus.
Overall, 69% of contractors said that if they were deemed inside IR35 they would either leave or charge a higher fee, according to research by specialist insurance broker Kingsbridge in the lead-up to the introduction of new off-payroll rules on Tuesday, April 6.
This potential exodus of contractors from talent pools is further exacerbated by the struggles this group have faced over the past year. According to Kingsbridge’s research, a staggering 70% of contractors have gone without government support so far during the pandemic, suggesting that a significant proportion of the flexible workforce could soon be lost to employers.
Tough job ahead for recruiters
Andy Vessey, Head of Tax at Kingsbridge, said the findings are alarming reading for recruiters trying to attract highly skilled and flexible contractors. “It's clearly been a difficult year for contractors, with the combined effects of Covid-19 and Brexit already weighing heavily on their shoulders, and IR35 is yet another challenge to contend with. Engagement and communication...will be key to ensuring that this significantly valuable resource doesn’t dwindle after April 6.
“IR35 reforms can seem complicated and troublesome for recruiters who have new responsibilities and liabilities under the rules. However, if the legislation is understood, enacted fairly and communicated effectively, then contractors will be able to keep working in the way that they want to, and end clients can prove that they are employing them legitimately and legally outside IR35.”
The research highlighted that, while 73% of contractors felt prepared or somewhat prepared for IR35, 55% did not believe their recruitment agency was ready.
Third-party sellers ‘a compliance risk’
Crawford Temple, CEO of Professional Passport, a large independent assessor of intermediary compliance, warned recruiters to be wary of third-party sellers and sales lead generation companies, which typically offered introduction incentives of up to £400 each.
“With umbrella charges typically equating to around £20 per week, it is difficult to understand how these large financial incentives can be offered through standard compliant offerings,” he said. “Many of these organisations seek to front their offering with an accredited provider to create a perception of compliance. Once leads are received, and where the individuals are looking for higher returns, they are often introduced to a different offering.
“Many of the ‘high return’ models operate significantly higher charges whilst at the same time returning larger take home pay for workers. Where compliant tax arrangements are used, the take home pay from providers will be broadly the same, with the only difference being where the charge varies, which should only result in a few pence difference to a worker.”
Beware the ‘ghost’ system
Temple also urged recruiters to be alert to ‘ghost’ systems, where providers seemingly operate compliant offerings with many workers engaged by a standard umbrella style arrangement.
“Behind this seemingly compliant offering lies a separate offering that is only offered to workers who express a desire for higher returns,” he said. “These non-compliant offerings typically fail to provide workers with pay slips or other communications relating to the breakdown of pay so that these would have to be requested by the recruitment company directly from the provider. The examples provided do not reflect the reality of the arrangements and are designed to mislead.”
Tell-tale sign of non-compliance
A tell-tale sign for recruiters that something is wrong is a sudden increase in workers operating through a specific provider for no apparent reason.
“Ignorance is no defence, and the supply chain needs to work together to drive up standards and promote the importance of compliance,” Temple said. “The message is clear: work with compliant partners that you trust and be wary of firms that seem to be aggressively cashing in on new upcoming legislative changes.”
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