What do contractors really think about IR35 reform?

With IR35 reform in the private sector arriving on 6th April, it’s little wonder that this complex tax legislation is so high on the agenda of contractors and the businesses that rely on these workers.

When the changes are introduced, limited company contractors will no longer hold the responsibility for determining IR35 status, unless their client qualifies as a small business. Instead, medium and large businesses engaging contractors (also known as the end client) must carry out IR35 assessments.

The liability will also shift away from the contractor. Working off the basis that all parties in the supply chain have met their obligations under the new rules, the risk will rest with the fee-payer going forward.

Taking the significance of IR35 into account, in the SJD Accountancy Contractor Survey 2020, we asked thousands of contractors how they felt about the reform, its potential impact and what it might mean for the future of contracting.

At a glance, here’s what more than 2,300 told us…

Contracting to survive IR35 reform

IR35 reform presents the industry with a number of challenges, but that’s not to say contractors will stop operating in this way. In fact, when asked, more contractors (36.6%) said they plan to continue working for themselves than go employed (36.3%). Granted, there’s not much in it, but it certainly pours cold water on speculation that IR35 reform will lead to the end of contracting.

IR35 reform concerns made clear

Even so, contractors are clearly sceptical about reform. With 71.5% of the opinion that public sector changes (introduced in 2017) have not been a success, it’s hardly surprising that 68.1% are either very concerned or concerned about the possible impact of similar changes in the private sector.

Contractors are weighing up their options

Our study also shows that IR35 reform has led many contractors to consider their future plans when working independently. For example, 42.3% believe they may need to operate via an umbrella company (where IR35 doesn’t apply), while 39.8% are thinking about searching for contracts abroad, no doubt with overseas companies that are unaffected by the changes.

Businesses set to lose out, warn contractors

It’s been well documented that some businesses will stop working with contractors because of IR35 reform. While this isn’t the attitude of the private sector as a whole, news of ‘blanket contractor bans’ have done little to reassure people that the changes can be managed. It’s therefore understandable that around three quarters (76.6%) of contractors think private sector businesses will lose out when the changes are enforced.

Contractors critical of government timings

Despite reform having been deferred by one year due to the pandemic, 77.7% of contractors are of the view that it should have been pushed back even further. A similar amount (71.8%) were critical of the government for waiting until 17th March 2020 (less than a month before the original 6th April 2020 rollout date) to delay reform – they feel this announcement should have been made much sooner.

So what can we learn from this research? To summarise, contractors are worried about IR35 reform and not yet convinced that businesses will be ready for the rollout. However, as our own in-house IR35 expert Amy Davies explained, she remains cautiously optimistic:

“There is a clear reluctance from contractors to stop contracting and accept permanent employment in response to IR35 reform, which shows how much they value their independence. As we close in on April 2021, we expect to see many more businesses approaching off-payroll changes sensibly and pragmatically.”

For the full breakdown of this exclusive IR35 insight and to download your copy of the SJD Contractor Survey, click here.