What do Contractors Think of HMRC’s IR35 Reform Communications?

With off-payroll reform approaching, HMRC carried out a study into the quality of their IR35 reform communications materials produced for contractors. In this research, the tax office explored how aware contractors are of IR35 reform (if at all), before asking participants how they would like to be kept updated about the changes.

After holding in-depth interviews with 30 contractors who, from 6th April 2021, will no longer be responsible for determining their IR35 status when engaged by medium or large businesses in the private sector. HMRC drew the following conclusions.

IR35 reform awareness is sector dependent

While some of the contractors interviewed felt well informed about IR35 and the incoming changes, others had limited or no knowledge of the reform and were unsure if it applied to them. This is supported by the upcoming SJD Contractor Survey that found 12% of contractors are still not aware of the upcoming IR35 reform.

As expected, those well-versed in IR35 worked in IT or industries where many contractors operate, such as oil and gas, pharmaceutical, law and financial services. These individuals told HMRC they knew about the IR35 changes thanks to their peers, informal networking groups and from reading news articles after having searched for the information.

In contrast, those with little to no understanding of IR35 reform mostly operated in industries with fewer contractors - whether that’s in the creative world or hospitality sector. However, where these individuals had at least some idea about the incoming changes, it was often thanks to advice provided by accountants and mainstream media reporting.

Webinars deemed an important communications tool

In this study, HMRC wanted to get a clear idea of how best to inform contractors about IR35 and changes to the legislation. Perhaps due to the complicated nature of the rules, the individuals surveyed said they would benefit most from webinars in which detailed information about the legislation could be delivered properly. YouTube videos were also highlighted as a useful tool, given they allow for “lengthy explanations of policy”.

HMRC told to rethink unclear terminology

As briefly touched on, IR35 is often criticised for its ambiguity and the confusing terminology used to describe aspects of the legislation. HMRC examined this, finding that the term ‘off payroll working’ was not a familiar one among contractors, with ‘IR35’ more widely understood.

Contractors also raised concerns about the phrases ‘intermediary’ and ‘personal service company’, which were confused with recruiters or accountants. Those who participated in the study responded better to ‘limited company’.

Similarly, contractors weren’t comfortable calling an engager a ‘hirer’. Instead, ‘clients’ was preferred. You might argue this shows that contractors see themselves as businesses rather than employees of the organisations they provide their services to.

IR35 factsheet queried

HMRC asked contractors what they thought of their IR35 factsheet, which was published earlier this year to help individuals get to grips with the new rules. While this was said to be seen as “clear and objective”, contractors were still unsure about their tax obligations if they were to be placed ‘inside IR35’ by their client. As a result, HMRC have been urged to make this information easy to understand and more readily available in IR35 reform communications sent out in the lead up to April 2021.

For the avoidance of any doubt, should contractors be deemed inside IR35 by a medium or large client in the private sector from 6th April 2021, it will be the fee-payer’s responsibility to deduct the appropriate tax and pay this directly to HMRC. For more information, please click here.

HMRC’s justification for IR35 reform sparked reaction

It should come as no surprise that contractors affected by the reform didn’t agree with HMRC’s reason for introducing the changes. According to the research, contractors became “emotional and defensive about their decision to use a limited company” when being told why reform is going ahead. Unsurprisingly, this is something HMRC said could mean they will “close off from other messages.”

Because of this, and due to the better response it received from contractors, it seems that HMRC will instead opt to centre its IR35 reform communications on how things are changing, rather than trying to justify IR35 reform, given this is a battle the government is unlikely to win.

Experts left disappointed

Having digested the information, industry experts on the whole were less than impressed by this study. One commentator criticised HMRC for interviewing just 30 contractors, while another went as far to describe it as “devoid of critical evaluation”.

Such a disappointing reaction to the research, along with the stark reminder that some contractors are completely unaware of the reform, demonstrates that HMRC still has work to do to educate the wider industry about off-payroll changes.

Got a question about the IR35 reform communications?

If you would like to get a better understanding of IR35, changes to the legislation and how they may affect your way of working, request a callback and a member of the team will be in touch.