3 in 5 contractors could leave hiring businesses if found to be inside IR35

New research from Brookson Legal warns of a skilled contractor talent drain
as 6-month count down to private sector tax reform begins

UK businesses are at risk of a significant contractor talent drain if they do not prepare for IR35 tax reform in the private sector, a survey of 500+ contractors by Brookson Legal has found.

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

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 170,000 UK contractors deemed to be ‘disguised employees’ by HMRC may be faced with increased costs.

Businesses also face risks from wrongly categorising hundreds of thousands of genuinely self-employed contractors within IR35. Over a third (37%) of respondents said they would never consider going on-payroll and one in five (21%) would challenge an inside IR35 decision. Over half (53%) believe that the changes will deter people from becoming contractors in future.

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 2021. Based on a survey of 516 contractors, it reveals the concerns of the UK contractor workforce and the actions they may take if the businesses that hire them do not take reasonable care when it comes to their IR35 assessments. It also includes testimonials from four contractors currently working in sectors that rely heavily on a flexible contractor workforce: IT, construction, energy and utilities.

Contractors’ fears of IR35 are fuelled by a lack of trust that the businesses who hire them will be able to manage their new responsibilities. Only 3% of contractors believe that the private sector will be ready when the new rules comes into effect in April 2021 and less than a quarter (22%) trust that their hirers will make the right assessment of their IR35 status. Four in five respondents (83%) have not yet been spoken to about IR35 by the business or businesses they contract for and only a quarter (25%) have taken steps themselves to prepare for the changes

In contrast, four in five of all contractors surveyed (80%) said that they are more likely to work with a company that proactively advertises roles that are outside of IR35 and has proper IR35 policies and procedures in place. This suggests that the companies who do demonstrate reasonable care in making their assessments could have a competitive advantage when it comes to attracting talent.

Joe Tully, Managing Director of Brookson Legal, said: “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. The outcomes will not only impact contractors’ way of life, they have operational and financial consequences for businesses too.”

The latest Brookson Legal research also revealed that there is still a confusion as to where the responsibility for IR35 lies, with 37% of contractors thinking that it lies with them post April 2021, and 23% admitting they don’t fully understand the changes

“Businesses should be making IR35 assessments an urgent priority and ensure they take reasonable care when looking at an individual’s circumstances.” Joe Tully continues. “Not doing so could cause further complications down the line, including challenges from contractors and falling foul of HMRC. Coming to a fair and just conclusion of a contractor’s IR35 status, on the other hand, allows the business to move on and look at the best next steps for their workforce.”

Brookson Legal’s new contractor research follows on from its ‘IR35: A ticking timebomb’ report, published in May this year, which surveyed decision makers at 500 medium and large-sized businesses who hire contractors. Asked what the benefits to hiring contractors are, 60% said flexibility on projects and support at peak times, 58% said specialist skills and 37% said reduced headcount of permanent staff.

Three in five (59%) admitted, however, that they would consider taking a blanket approach to managing IR35 legislation, because they don’t have the time to assess contractors individually. 48% of businesses would also be encouraged to reduce the number of contractors they hire, while 39% expect there to be fewer contractors available following the private sector changes next year.

Joe Tully concludes: “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.”

To find out more about the IR35 research amongst UK contractors and to download a copy of the Brookson Legal ‘Avoiding a contractor talent drain’.

Notes to Editors

For further information, please contact: Chris Baker, 07583 079640, at Speed Communications: brookson@speedcomms.com

* The Brookson Legal IR35 contractor survey was conducted by Brookson Legal between 11 April and 9 July 2019 with a total of 516 UK contractors surveyed.

The Brookson Legal IR35 hirer research was conducted by Censuswide between 9-12 April 2019. In total, 502 decision makers across multiple sectors, in medium and large companies (50+ employees and turnover of £10.2 million or more) who hire contractors or freelancers in Great Britain were surveyed. Censuswide complies with the Market Research Society Code of Conduct (2010) which is based upon the ESOMAR principles (for more information visit www.esomar.org).

About Brookson Legal Services

Brookson Legal Services, the IR35 experts, is the only Solicitors Regulation Authority (SRA) regulated law firm that focuses on IR35.

Advising on IR35 since it was first introduced in 2000, Brookson Legal carries out thousands of employment status assessments each year. It works closely with hirers, recruiters, and contractors – providing impartial advice and IR35 expertise to help both the public and private sector understand its IR35 obligations, and mitigate risk, whilst maintaining all the benefits that a well-managed flexible workforce brings.

For more information on Brookson Legal visit www.brooksonlegal.co.uk