Taxman's IR35 off-payroll rules dominate contractors’ concerns for 2023

IR35 off-payroll rules introduced on April 6th 2021 are contractors’ biggest concern of 2023.

More than one third (36%) of contractors rate the legislation in force for almost two years as their “biggest fear” for the year ahead, a poll of 700 independent workers shows.

That makes the revised Intermediaries legislation of 2021 concerning to more contractors than the cost of living (31%), found Qdos, which polled the 700 for its annual survey.

The risk of HMRC investigation into contracts completed pre-IR35 reform, plus the prospect of clients defaulting to on-payroll only, fuels the fear-factor, the firm told ContractorUK.

'Combination of factors'

The two concerns also explain how despite the legislation being in force for 21 months (during which time a Budget vow to repeal it was reneged), it is clearly not a case of ‘the devil you know.’

Qdos says for PSCs this “combination of factors” potentially extending to the “lot of work” still to do to educate clients, is why the rules effective from one year and nine months ago are their top fear.

“I wouldn’t necessarily say contractors should be fearful,” reassured the firm’s CEO Seb Maley.

“But they must be mindful of the risks still presented by IR35 and are advised to mitigate them.”

'IR35, a huge thorn'

Originally set up to quash IR35 of 2000, the Association of Independent Professionals and the Self-Employed (IPSE) isn’t surprised that the latest variant is giving an unmatched number of contractors sleepless nights.

“As this latest research points out,” IPSE’s Andy Chamberlain began to ContractorUK, “the IR35 reforms remain a huge thorn in the side of genuine contractors.”

Patrick Joyce of Project Scopes believes it is credible that IR35 trumps other contractor concerns, even “incoming tax increases” (cited by 25% of poll respondents).

'All contractors onto the payroll'

“The reality now that the dust has settled [on the government’s decision not to cancel the off-payroll rules], is that hiring managers and departments [have reverted].

“They are keeping with their [original] policy of putting all contractors onto payroll without status consideration, and with no intentions of reviewing that set-up going forward.”

An SDS specialist, Mr Joyce continued to ContractorUK: “Unfortunately, it takes a high value project to fail before [the ‘play safe’ option is] looked at, only for clients to realise the talent left long ago.”

'Difficult to land an outside IR35 contract'

According to the Qdos poll, IR35 ranks as the biggest contributing factor to poor business performance last year, voiced by six in ten contractors.

More positively, eight in ten PSCs managed to secure outside IR35 work in 2022 (representing a 15% improvement on 2021), but even then, 44% said doing so was “difficult.”

And asked about this year, a comfortable majority of contractors (61%) said it “won’t become any easier” to land contracts not deemed caught by IR35 in 2023. 

“Even those who have been able to secure an outside IR35 contract remain anxious that finding the next one will be challenging,” reflected Mr Chamberlain, of IPSE.

'There's little recruiters can do'

As to why it is challenging, Qdos’s chief IR35 contract reviewer said that often, recruitment agencies are led by the end-client’s approach to IR35.

“And frustratingly, if a client has no intention of engaging genuine contractors outside IR35, there’s little recruiters can do,” Mr Maley told ContractorUK.

“Agencies have played an important role in turning the tide, though. By educating clients on the benefits of taking a pragmatic approach to the off-payroll working rules and engaging true contractors outside IR35, there are plenty of cases where clients have reversed blanket bans.”

'Contractors under IR35 investigation by HMRC'

Taking to LinkedIn to say bans are being reversed, Mr Maley was met by contractors posting the names of logistics, financial and professional services firms all keeping their bans in place.

Seeing similar, Project Scope’s Mr Joyce said he has heard contractors talk of “changing their future plans” or worse, “reconsidering their career options” entirely as a freelance professional.

Fears about joining the payroll; starting a new career from scratch, contracting overseas, or taking early retirement could be the least of contractors’ fears of course -- if an inspector calls.

“HMRC is making no secret about its increased IR35 compliance activity,” says Qdos’ Mr Maley.

“HMRC is ramping [it] up…on two fronts. In addition to carrying out compliance checks at businesses, the tax office also has a number of open cases where contractors are under investigation.”

'Off-payroll checks now underway'

Alexander Jackson, an adviser on IR35 at Kingsbridge posted yesterday: “It's started -- IR35 off-payroll compliance activity.

“In recent weeks…[we have started] seeing the first of HMRC's off-payroll compliance ‘checks.’ HMRC's demands and questions include specific details regarding contractors, Status Determinations, and the process used to make those determinations.”

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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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