Private sector warned of IR35 talent drain

Three in five contractors could seek alternative work with other businesses if they are found to be inside IR35 when the intermediaries legislation moves into the private sector next April.

Brookson Legal surveyed more than 500 contractors on how they would respond if an employer found them to fall under IR35, meaning they are treated as any other employee when it comes to tax and national insurance.

Legislation requiring employers to take responsibility for checking contractors’ employment status already exists in the public sector, and is due to apply to private sector companies from April 2020.

If assessed to be caught inside IR35, 59% of contractors surveyed by Brookson Legal said they would consider seeking alternative work with another business. Just under a third (30%) confirmed that they would consider stopping contracting altogether and one in eight would consider retiring (14%) or moving abroad (13%).

Half said they would ask for a pay increase or additional employee benefits to make up for any increased costs. Brookson Legal found that just 3% of contractors thought businesses would be ready for the change in legislation.

Over a third (37%) said they would never consider going on-payroll, and 21% said they would challenge a decision by a business that they fell inside IR35. Fifty-three percent said the changes to the law would deter people becoming contractors in the future, which could lead to a talent drain for industries that rely on contractors’ skills.

Brookson Legal’s research also found concerns that employers may reach the wrong decision on whether contractors fall under the legislation. HM Revenue & Customs’ Check Employment Status for Tax tool has been heavily criticised for producing unreliable assessments.

Less than a quarter of contractors (22%) trust that businesses will make the right assessment of their IR35 status, according to Brookson Legal, while 83% have not yet discussed their status with companies they contract for. Only a quarter (25%) have taken steps to prepare themselves for the changes.

Eighty percent of contractors said they would be more likely to work with a company that proactively advertises roles outside of IR35 and has proper policies and procedures in place.

There was also some confusion as to where the responsibility lies – 37% of contractors thought that it lies with them post April 2020, while this now shifts to the employer. Almost a quarter (23%) admitted they did not fully understand the changes.

Joe Tully, managing director of Brookson Legal, urged businesses to make IR35 assessments a priority: “The fact that 59% of contractors would consider moving to another business if found to be inside IR35 shows how important it will be to get these complex assessments right,” he said.

“The outcomes will not only impact contractors’ way of life, they have operational and financial consequences for businesses too.”

A report earlier this year by Brookson Legal found that 59% of decision-makers would consider taking a blanket approach to managing IR35 because they don’t have the time to assess contractors individually.

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Tully added: “When we surveyed UK businesses earlier this year, our research found that, on average, hirers think it will take them around six months to get ready for IR35. That deadline is here, but there’s still time to get IR35 ready if companies start to take action immediately. If they don’t, they risk alienating and potentially losing their valued contractor workforce.”

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