IR35: What would you do?

IR35

There have been reports in recent weeks that some well-known financial service companies, including Morgan Stanley and HSBC, will cease to work with contractors outside IR35 rules once the reforms are rolled out the private sector on 6 April 2020. This is presumably so they do not have to go to the trouble of preparing for the reforms and ensuring the legislation is implemented.

This could result in contractors being issued with an ultimatum: become a permanent employee, operate through an umbrella company, or cease working with that client altogether.

What would you do?

This is, understandably, not a situation any contractor wants to find themselves in but, if you were given such an ultimatum, what would you do about it?

A study by Contractor Weekly suggests perhaps unsurprisingly, that the only people who would lose out in this scenario are the end-clients and the recruitment agencies. A massive 72% of the 1,200 contractors surveyed indicated they would simply leave that particular contract and lose the client, rather than giving up the independence of being a contractor.

In fact, only 10% said they would accept an offer of employment from their client. A huge 91%, meanwhile, said that they take particular pride in their independence – only 9% saw it as “just a job”.

Umbrella companies proved no more popular than becoming an employee. Only 18% said they would take up this option. While umbrella companies can be valuable for contractors, many did not want it as a permanent solution, as it would make them, technically, the umbrella company’s employee, affecting how they are taxed.

There are, of course, also extra costs involved when working through an umbrella company and to counterbalance this, contractors would need to raise their rates, increasing costs for the client.

It’s perhaps hard to know for definite what you would decide if it were your livelihood on the line, but these statistics suggest that taking the approach of ultimatum-giving would result in many businesses losing valuable skillsets.

What should they do?

Rather than simply getting round IR35 reforms by deciding not to hire contractors outside IR35, medium to large businesses should, instead, actively prepare for the reforms and continue to allow contractors to have the opportunity to have their tax status fairly assessed.

And while it is a little worrying that some businesses are taking this approach, they are not the majority. There is no reason to think that many businesses won’t be happy for contractors to continue to work outside IR35. In fact, this will need to be the case to ensure businesses still have access to the top-level skills that contractors provide.

If you intend to continue working outside IR35, remember that having your own contractor insurance is a key IR35 indicator for HMRC. We can help you get set up and ensure your insurance doesn’t lapse so that you’re covered and have all of your documents in place. Simply call us on 01242 808740 or visit our website to find out more.

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