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01 October 2019 10:48

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Businesses need urgent clarity on IR35 private sector off-payroll rules

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. If assessed to be caught inside IR35, 59% of contractors surveyed by Brookson Legal said they would consider seeking alternative work with another business. 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. 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.

A survey of more than 500 contractors by law firm Brookson Legal has found (59%) of contractors say they would consider seeking alternative work with another business, while just under a third (30%) would consider stopping contracting altogether and one in eight would consider retiring (14%) or moving abroad (13%). Private sector firms need to take their time to understand the complexities of the incoming IR35 tax avoidance reforms or risk losing their contractor talent, a report by Brookson Legal has warned. The IR35-focused legal firm polled 516 UK contractors to gauge their concerns about the April 2020 extension of the IR35 reforms to the private sector, and what action they are willing to take if their engagements are adversely affected by the new rules. Under the reforms, from April 2020, medium to large private-sector organisations will take responsibility for determining whether the contractors they engage with should be taxed in the same way as salaried employees (inside IR35) or off-payroll workers (outside IR35). According to the Brookson Legal poll, 59% of respondents said they would seek out new job opportunities if an engagement with their current organisation is deemed to be inside IR35, and a further 21% said they would challenge such a determination.

"A lack of preparation on the part of public sector hirers led to wide-scale ramifications, including a loss of skilled contractors to the private sector, project delays and escalating costs," said the Brookson Legal report. "Undertaking the IR35 employment status tests takes time and resource and even HM Revenue & Customs [HMRC] has struggled to understand and apply the rules," said Joe Tully, managing director of Brookson Legal. Lack of preparation for IR35 tax reform in the private sector will put UK businesses at risk of a significant contractor talent drain, according to a survey of 500+ contractors by Brookson Legal. If assessed to be caught inside IR35 and told to pay employment taxes by the businesses that hire them, more than half of the skilled contractors surveyed by Brookson Legal (59 per cent) said they would consider seeking alternative work with another business. Half (50 per cent) also said that they would ask for a pay increase and employee benefits if assessed as being inside IR35, suggesting that companies who wish to retain the talents of the contractors deemed to be 'disguised employees' may be faced with increased costs.

The report, Avoiding an IR35 talent drain, has been published by Brookson Legal with six months to go until the off-payroll working rules come into force in the private sector in April 2020. "The fact that 59 per cent 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," said Joe Tully, managing director of Brookson Legal. With six months to go until IR35 off-payroll rules for contractors are extended to the private sector, HMRC is coming under fire over the lack of detailed information about liabilities about employment status Steed said: 'These changes come in from next April which means that businesses now have only about six months to get ready - and this at a time when many may also be preparing for or responding to the implications of Brexit. Only 3% of contractors believe that the private sector will be ready when the new rules comes into effect in April 2020 and less than a quarter (22%) trust that their hirers will make the right assessment of their IR35 status. If assessed to be caught inside IR35 and told to pay employment taxes by the businesses that hire them, more than half of the skilled contractors surveyed (59%) said they would consider seeking alternative work with another business.

Half (50%) also said that they would ask for a pay increase and employee benefits if assessed as being inside IR35, suggesting that companies who wish to retain the talents of the contractors deemed to be 'disguised employees' may be faced with increased costs. Joe Tully, managing director of Brookson Legal, said: 'Businesses should be making IR35 assessments an urgent priority and ensure they take reasonable care when looking at an individual's circumstances.