IR35 reforms: Concerns raised over private sector’s lack of preparedness for April 2020 start date

Recruitment firm Hays has expressed concerns over the low levels of awareness there appears to be in the private sector regarding the IR35 tax avoidance reforms, which are due to come into effect in April 2020.

This is in response to a poll of 31,598 UK-based individuals who identified as either employees or employers working in a range of industries to gauge their understanding and levels of preparedness for the extension of the IR35 reforms to the private sector next year.

According to Hays, the results revealed that a third of private sector organisations that regularly engage contractors said they were unaware of the reforms, and the fact that from April 2020 next year they could become responsible for determining the tax status of any freelancers their organisation hires.

This is because the reforms will see medium-to-larger private sector organisations take over responsibility from the contractors themselves for determining if they should be taxed in the same way as permanent employees (inside IR35) or off-payroll workers (outside IR35).

Of those who are aware of the incoming reforms, 24% said they have concerns about the changes, with 68% worried about the additional costs this change in responsibility may bring about, while 56% said they feared losing key talent as a result of the changes.

Furthermore, 43% of respondents whose organisations would be liable to adhere to the reforms said they have begun preparations, whereas one fifth said they have not.

The last few months have seen a rush of private sector companies share details with their employees about how they intend to respond to their newfound responsibilities under the terms of the IR35 reforms, particularly in the financial services sector.

However, Simon Winfield, managing director of Hays UK & Ireland, said his firm’s survey shows there are large portions of the private sector that still need to crack on with their IR35 preparations.

“It’s concerning to see that such a large number of private sector organisations who engage non-permanent contractors are either unaware of the legislation, haven’t begun preparations or do not even know what proportion of their workforce the reforms relate to,” said Winfield.

“Organisations should begin to address key issues associated with the IR35 reforms to avoid potential risks including increased costs and workloads, as well as a loss of key talent. In a skills-short market, it’s important that employers take these risks seriously to avoid losing talent to other organisations who are better prepared.”

Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed, said the results are indicative of the fact the government has done “nowhere near enough” to educate businesses and contractors about the forthcoming changes.

“Not only do a third [of respondents] not know anything about them; those that do are extremely concerned – and with good cause,” said Chamberlain.

“The nightmarish complexity of IR35 will result in a significant extra administrative burden and cost for hiring organisations. Compliance with the rules is clearly going to be an uphill struggle for businesses across the UK.”

“Hirers must not, however, be tempted to do as several banks have and either scrap their contractors or force them onto the payroll,” he said. “This is a hugely damaging and short-term step that will stifle their flexibility and come back to haunt them later.”