Kingsbridge IR35 Insurance
The stated purpose of the private sector IR35 reforms is to tackle avoidance and ensure that contractors and PSCs are paying the right amount of tax. It is not there to disadvantage “genuine” contractors, that represent a vibrant and increasingly important part of the UK economy.
In order to obtain a better insight into the probable challenge that the market may face, a research was administered with EY and Kingsbridge across contractors of approximately 50,000 contractors, this was inclusive of a survey which received close to 3,000 responses. It was subsequently found that the amount of contractors said to be at a potential risk of being considered inside 1R35 was significantly smaller than that which was suggested by HMRC, however there was seen to be a clear need from contractors to work with recruiters to vary contract terms and working practices to reduce the risk even further.
Kingsbridge will have a lower percentage at risk than HMRC’s view of 1 in 3 as Kingsbridge’s contractor base are generally paid higher fees, on average, than the average contractor across the population. Whilst not a conclusive indicator of employment status, it does tend to support that a high percentage of contractors are capable of falling outside of IR35 due to the nature of their work.
41% of respondents answered that they are self-employed due to the lifestyle that self-employment provides. This indicates that many individuals would seek to remain in self-employment regardless of the reforms.
EY put a higher weighting on control as a factor for IR35 status. 76% of respondents provided answers that indicate they are not subject to control and therefore may be outside IR35. Only 14% are at a significant risk of being deemed as caught by IR35 as they claim they are controlled by the end client.
After having an IR35 test or review only 10% were assessed as being caught by IR35. 76% were deemed outside IR35 as a result of the test.
Individuals that contract directly with the end client may be at most risk from being impacted by the IR35 reforms, due to the uncertainty of how end clients will react. Contractors engaged via a recruitment agency can be expected to receive some advice from the agency on how to ensure they remain outside IR35, as the agencies will be keen to continue to place them and may therefore be less at risk to end clients making rash decisions regarding their IR35 status.
It is also worth noting
The result of the survey suggests that a vast amount of contractors will have finished their previous contract and subsequently moved to a new one before the commencement of new rule set to be introduced in April 2020. The meaning of this, surrounds the notion that any risk is only an indication of the risk as it currently stands. Contractors and their end clients will likely seek to assess working arrangements to see if amendments can be made in order to ascertain that IR35 does not apply. Therefore, no assumption should arise that the market is static. There may also be a scope for contractors to increase rates and so be happy to continue contracting via a PSC even if IR35 applies.
It is also predicted by EY that there will be a recovery in the amount of contractors operating outside of IR35 once the new rules settle down, the preliminary effect may be condensed over time.
Just because IR35 may be held to apply initially this does not mean that changes to the contract/ working practices cannot be made that bring the contractor outside IR35.