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HMRC IR35 research reveals strong resistance to rule changes

Contractor clients have expressed strong opposition to proposed public sector IR35 reforms that would see them assume responsibility for determining a contractor’s employment status.

In a new Government report compiled to analyse the implications for contractor engagers, respondents raise numerous concerns relating to the impact on flexibility and business costs, as well as questions over its application. Intermediaries Legislation Qualitative Research highlights:

  • HMRC deemed to be ‘passing the buck’ onto contractor clients
  • Responsibility shift perceived to undermine clients’ relationship with contractors
  • Proposed changes expected to result in a loss of flexibility for clients
  • Organisations perceive huge administrative and cost implications from testing contract staff on an ongoing basis
  • Companies suggest contractors will be placed on payroll to reduce risk to business
  • Clients may seek to insource roles, resulting in less suitable staff undertaking tasks
  • Confusion over where liability rests in larger supply chains
  • Concerns over implications for contractors with regards to privacy over their tax circumstance

Of particular concern to contractors will be the acknowledgment of respondents to ‘err on the side of caution’, with the implication that most contractors are likely to be placed on a payroll to reduce the risk to business.

Encouraging this notion is the public perception of HMRC. Clients are wary of the risk posed by the taxman’s tendency to impose strict penalties on organisations when errors are made, with one respondent commenting:

“You see an awful lot of Tribunal cases coming along where they missed out a tiny little thing and they end up with a huge financial penalty.”

Respondents also note that placing contractors on a payroll would nullify the flexibility that many firms cite as a key benefit to hiring contingent staff. Ultimately, clients struggle to see any benefits to the proposed changes, with the report noting:

“There was a general cynicism regarding why this responsibility should shift and was seen as another burden’ for organisations. Organisations felt as though HMRC was ‘passing the buck’ and they were unable to see an upside for them.”

As means of a resolution, survey respondents expressed the need for more information and clarity around the rules, and called for more support from HMRC in the form of online information, training, and a helpline.

However, ContractorCalculator CEO Dave Chaplin says HMRC is less than well-equipped to help in this regard: “The whole point of shifting the burden is that HMRC cannot carry out the enforcement. If it asks employers to do it, it will be inundated with phone calls.”

Notably, the survey also sought feedback on the ‘supervision, direction or control’ (SDC) employee status test, suggesting that HMRC is considering applying it as a means of determining IR35. The consensus was that the test would encompass the majority of contractors, who would mostly be supervised to an extent.

Growing concerns over an eventual private sector roll-out were also compounded by the report, which sought feedback from both public and private sector organisations, and which noted that its IR35 tool would also be available for private sector use.

Published: 14 July 2016

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