What makes a good accountant?
21 November 2021
With IR35 reform in the private sector arriving on 6 April 2021, contractors are readying themselves for the changes, which will see the responsibility for determining IR35 status passed to the medium and large businesses that engage them.
Since it was confirmed that reform will go ahead after an unexpected one year deferral caused by the Coronavirus pandemic, there has been a lot of speculation about what the future might hold for this important sector of the workforce.
For example, many contractors are asking themselves a number of questions, including:
- Will businesses continue to work with contractors who operate through personal service companies (PSCs)?
- Might companies leave their preparations to the last minute and therefore make rushed and inaccurate IR35 determinations?
- Could firms reduce the number of PSC contractors they work with or stop engaging them entirely due to the reform?
In this article, we’ll gaze into our crystal ball and explore a number of possibilities, which we’ve based on our experience in supporting contractors with their IR35 position since the arrival of this legislation in 2000.
Contracting will prevail
The expertise, flexibility and undeniable value that contractors offer businesses are unlikely to be overlooked, particularly in this economic climate. For example, in September it was reported that demand for contractors increased for the seventh consecutive month. Due to the clear and growing need for flexible workers, there is a strong case to be made that businesses will do what’s required to successfully manage IR35 reform – this is certainly our view here at Caroola.
With an extra year to prepare, many more firms are likely to be ready to carry out compliant contract reviews that allow true contractors to work outside IR35 should they choose to. So when the dust does settle on reform, don’t be surprised if the number of fair IR35 assessments increases.
Increased umbrella working?
In reaction to reform, some businesses might look to engage contractors via a compliant umbrella company – whether it’s because of the time, resource and expertise required to carry out IR35 assessments or because they don’t have systems in place to deduct the appropriate tax on contracts deemed inside IR35.
This is because when a contractor is engaged via an umbrella company, they become an employee of the umbrella, meaning IR35 is no longer a consideration. The contractor’s PAYE tax and NI contributions, meanwhile, are taken care of by the umbrella.
Umbrella working can suit contractors, given they also gain access to a number of employment rights (such as paid sick leave) while also retaining the independence and flexibility that independent workers value so much. For more on this, you can learn about the benefits of using an umbrella company on Parasol, our sister company’s website.
Or could IR35 reform create long-term problems?
If you keep your eye on the IR35 news, you may have heard there are a number of businesses that have told contractors they will need to become employees to carry on working with them. This has worried some independent professionals, who fear that working outside IR35 might prove tricky going forward.
However, given this would mean businesses ultimately lose out – a view that 76.6% of contractors shared in the recent Caroola Contractor Survey – it seems unnecessary for companies to take drastic and needless action. So, while there may be pockets of businesses that hesitate to engage contractors, it seems unlikely that this will become commonplace.
When looking ahead to the contracting landscape after IR35 reform, this was a point that Joanne Harris, Technical Commercial Manager at Caroola, made very clear:
“IR35 reform remains a concern for contractors but I’m confident that in the coming months we will see more and more businesses become proactive and begin to assess contracts in a fair and compliant manner.
“In uncertain times, businesses lean on these workers, who provide them with key skills on a flexible basis. I don’t expect IR35 reform to stand in the way of this and I have no doubt that contractors will still be able to work via personal service companies outside IR35 if they choose to in years to come.”
Find out more about IR35
If you would like to learn more about IR35 and the upcoming reforms, please download our complete guide to IR35.