- Umbrella company, Parasol’s annual contractor barometer highlights apprehension around the proposed government changes, which come into force next April
- The study found that 72 per cent of contractors believe private companies will be denied access to vital skills because of the upcoming changes
- With just two months to go, almost 45% of contractors remain unsure if working via a limited company or an umbrella company would be best for them
Seven in every ten contractors (72 per cent) believe that UK private companies will ultimately lose out when proposed IR35 reforms come into play this April by missing out on access to skilled and highly sought after workers.
One of the UK’s leading umbrella companies, Parasol, surveyed more than 1,400 contractors, working across industries including IT, financial services and engineering. The survey was launched in advance of the implementation of the changes, which are due to come into force from April 2020.
The Parasol survey also found that almost half (45 per cent) of all contractors were unsure whether working via a limited company would still be the best solution for them post-IR35, with many considering other options such as joining an umbrella company.
Following the reforms to IR35 legislation in April 2020, medium to large private sector businesses will need to take responsibility for determining whether the contractors they work with should be taxed in the same way as salaried workers or off-payroll employees.
Similar IR35 reforms were rolled out across the public sector back in 2017 and the government plans to extend the changes to the private sector in a bid to clamp down on ‘disguised employees’ taking advantage of tax deductions reserved for the self-employed.
In January 2020, the government confirmed it would launch a review ahead of the changes coming into play in April, in order to gather information from those most affected to determine the best method of progression. This is expected to take the form of roundtable discussions, where business owners, contractors and recruiters can air their concerns.
Worryingly, with less than three months before the national rollout which impacts an estimated 3.9million contractors in the private sector, more than one in five (21 per cent) admitted to knowing nothing about the upcoming changes.
Clarke Bowles, Head of Key Accounts at Parasol, said: "Our survey provides some interesting insights into the attitudes and opinions of UK contractors and highlights some notable concerns ahead of the proposed IR35 changes.
"One of the key issues around the changes is a lack of understanding of what the new rules will mean in practice. Our study highlighted confusion from UK contractors, but we also know from the recruitment firms and agencies we work with every day how they too have struggled to understand what their responsibilities are with end-clients to manage compliance effectively.”
The survey also found that the majority of contractors (40 per cent) would look to their accountant for help determining the IR35 status of a contract. This was followed by 25 per cent who would go to their agency and 11 per cent who would speak to the end-client. Nine per cent used a third party legal advisor and just seven per cent opted for the government’s CEST tool.
More than 50 per cent of respondents also said they had paid for an IR35 contract review, with 39 per cent taking out insurance policies to cover themselves in case of an IR35 tax investigation.
“IR35 experts are well placed to offer advice and guidance on determining the IR35 status of contracts and it’s great to see that contractors would look in our direction for support,” added Clarke.
“But agencies and end-hirers also have an important role to play and will have more responsibility from April 2020, so it’s vital they take the time to understand the legislation and what the reforms entail.
"We’re seeing more interest from contractors who want to choose an umbrella solution for their careers but we’re also working hard to ensure greater awareness and understanding of what the changes will mean in practical terms. We must continue to do that across the sector as we countdown to April 2020.”
Additional data is available on request. References within this story include:
1 When asked if private sector companies would ultimately lose out when proposed off-payroll working rules (IR35) are rolled out into the private sector, 28.4% per cent strongly agreed; 43.4 per cent agreed. Combined: 71.7 per cent
2. When asked if they would need to move to an umbrella company to continue contracting after proposed off-payroll working rules (IR35) are rolled out into the private sector, 44.7 per cent of contractors had no opinion either way.
3 When asked if they were aware of the proposed off-payroll working rules (IR35) being rolled out into the private sector, 21 per cent said No.
4 When asked how they determined the IR35 status of a contract, 6.6 per cent used the Government’s CEST tool; 40.3 per cent used an accountant’s confirmation; 25.1 per cent used an agency’s confirmation; 10.9% used an end client’s confirmation; 9 per cent used a third party legal advisor; 8.1 per cent used another method.