According to new research only 14% of contractors have been assessed as outside IR35, contrary to HMRC’s expected 66%. The research, conducted with over 2,800 contractors, also found that 37% are still being assessed despite being six weeks away from go live. A further 75% believe the conclusions of the review announced today, to include a so called ‘soft-landing’, will do nothing to change their client’s approach. It highlights the extent of widespread bans, major flaws in the way companies are carrying out IR35 assessments, and the general lack of preparedness for April 6th.

In anticipation of an ineffective review, 29% of contactors have begun an unofficial strike and walked away from their clients, with two thirds (64%) of those moving to new clients offering fairly assessed outside IR35 roles. A further 36% of contractors are currently ‘on the bench’ and have no clients or income as they wait it out. The consequences of this move will be an impact on tax receipts, including VAT, in the next two to six months, Corporation tax in the next 9-21 months and Income tax come January 2021.

Only 14% of contractors have accepted umbrella / PAYE contracts, suggesting contractors are even more prepared post review to hold firm and resist being pressured into these employment vehicles.

Class action on the cards

The reasons why are clear; 86% of those that are now inside IR35, using an umbrella or PAYE did not get a rate uplift to cover the employer’s taxes. As a result, 87% are now looking for contracts elsewhere. The research also underlines the concerns about PAYE as 85% seek employment rights, and 69% are seeking benefits to match those of permanent employees. The inequality is so stark that 85% would join, or would consider joining, a class action case seeking these rights.

James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, says “The review will do absolutely nothing to turn the tide of actions being taken by contractors. The review plays down flight risk. It’s nonsense, we are very clearly seeing it happen.”

“Contractors anticipated a soft review and have put the wheels in motion to disrupt the economy. Two weeks ago we found that 1 in 2 contractors threatened to leave clients before the end of March. We are now seeing that threat come true as they shun pressure to take inside IR35 roles. 1 in 3 have already downed tools and have walked away in a form of unofficial strike.

“It seems, businesses see inside IR35 or umbrella / PAYE as the lowest-risk option, but this is far from the case, as class action starts to bubble up. What’s more many contractors would rather leave than accept these terms, presenting a risk to client projects, national productivity to the tune of £2.2bn* and HMRC’s coffers.

“But not only that, contractors won’t recommend these clients – on average they get a 3/10 rating for fairness. In a tight community, that has to be a worry for hiring managers wishing to attract highly-skilled specialists. The findings are a warning shot – use the soft landing to review your approach or miss out on the best talent.”

Alexander Wilson, Barrister at Invicta Chambers and chartered tax advisor, agrees: “People are wise to paying employment taxes and not receiving any employment rights or benefits. The majority are demanding rights beyond the statutory minimum, and expect the same rights and benefits as permanent staff members (pension schemes, healthcare, sickness pay, right to fair tribunal). They have a valid case, and I expect this matter will continue to escalate. Hiring managers need to take care to use the ‘soft landing’ to remedy the situation or face the consequences.” **see notes to editors for more legal background.

The study also found that 71% believe a fair IR35 assessment is more important than being outside IR35. When asked to rate the fairness of assessment methods on a 1 to 10 scale, with 1 being low rate of fairness, CEST (2.0/10) and large consultancy firms did not fair well (2.7/10) as people assume ‘vested interests’. Conversely third-party specialists lead the way (7.5/10).

“We’re concerned about the reputation of CEST,” continues James. “We expected the government to announce further updates to the tool but they have done nothing to resuscitate its reputation. In fact, they have openly acknowledged its misgivings and ignored them. It’s a root cause of so much of the harm being done. It’s nothing short of a shambles.

He adds, “There is also widespread mistrust of large consultancy firms in the contractor community and it’s easy to see why. we have only seen one contractor assessed outside IR35 by a large consultancy firm. It’s causing many to conclude they have a “vested interest” in the outcomes of the assessments. It’s disappointing to say the least this has not been addressed by the review.

“What’s most frustrating is that there is no reason to get this wrong. There are third parties such as Larsen Howie, conducting assessments fairly. These companies generally take an individual approach with contractors and have a good reputation in the community. We expect post review that the use of third-party assessors will become even more of a point of differentiation, helping companies stand out from the crowd and attract the best talent.”

Dave Chaplin, editor of Contractor Calculator, concurs reputations are at stake: “The market appears to be moving to a position where clients and agencies that are seen to treat contractors unfairly are likely to damage not only their bottom line, but their brand reputation. The Treasury has repeatedly stated that the genuinely self-employed should not be affected, and HMRC insist that this is about ensuring fairness. But it’s now apparent that many firms who choose to respond in a manner contrary to the spirit of the legislation are discovering that their decision is now backfiring.”