Third of contractors 'outside IR35' under new off-payroll rules

The status of contractors under the new off-payroll rules is starting to settle, with two studies independent of each other both indicating about one-third to be working outside IR35.

The finding will reassure those who hoped that despite reactionary ‘inside’ decisions or PSC bans, the private sector will follow the public sector by eventually offering more ‘outside’ decisions than pre-reform.

But there is still some way to go. Having quizzed 2,000 contractors, Qdos found that 65 per cent have been determined as caught by the April 6th rules.

According to the status firm’s Dominic Johns, “that’s not to say [those] two-thirds [of contractors] will accept this decision,” because more than 1 in ten of those vowed to challenge it.

'If not challenging, then maybe looking elsewhere'

And even if contractors do seem to accept an ‘inside’ IR35 determination and not use the client-led status disagreement process, a majority still won’t sit idly by.

In fact, more than 8 in 10 decided by a client as either inside IR35 or subject to their ban, are already actively “looking for a new client,” says a similar study by inniAccounts.

Out of the almost 500 contractors quizzed by the accountancy firm, 35 per cent said they have had their PSC banned, or been classed inside IR35, since the reforms took effect.

'Niche skills up your outside-IR35 chances'

In the March-April 30th study, a significant 29% of the contractors said they were out of contract (so didn’t have a client), or were waiting to receive their status determination.

But both the Qdos and the inni study broadly agree about the ‘outside’ contingent – 33% and 36% respectively, meaning roughly one in three PSCs have been able to retain or secure a commercial contract.

“Those with niche skills are twice as likely to find an outside IR35 contract,” reflected inni’s CEO James Poyser.

Addressing contractors, he recommended: “Prioritise developing your in-demand skills for greater bargaining power.”

'I think I have no choice but to be brolly'

Also the boss of off-payroll.org, Mr Poyser pointed out that 75% of contractors at the opposite end of the spectrum (‘inside' IR35) were “being forced into an umbrella” company.

Although it lacks the large number of respondents which both the studies are based on, a poll by a developer on LinkedIn shows a near identical result.

Having asked his connections and followers ‘Why do you work through an umbrella?’, the response to the developer shows 74% voted for “’I think I have no choice.”

'Pretty damning indictment of off-payroll reform'

Dr Ian Campbell, secretary-general of the Independent Health Professionals Association, described the finding as a “pretty damning indictment of the effects of off payroll [reform]”.

“[That] small contractor businesses [are ending up] forced to use umbrellas [is] good for umbrella profits. But is it right that individuals with financial risk, and no guaranteed work, many of whom have thousands of pounds in overheads to make a loss against, end up in such situations?

He continued: “My thoughts are with all those now affected. [Here’s] hoping you find the clients that will work with you on how to structure your contract, rather than a simple focus on their own risk mitigation.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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