Following a study into contractors’ views of IR35 reform in the private sector, which will result in clients being handed the responsibility for setting the tax status of these individuals, the vast majority has once again called on the government to issue employment rights should they work inside the rules.
The Freelancer & Contractor Services Association (FCSA) and FreeAgent flagged up the issue, where more than three-quarters (76%) of limited company contractors said should be addressed as HMRC prepares to introduce reform in April next year.
This has been a bone of contention for contractors and industry specialists for some time, with many urging the government in their IR35 consultation responses to give individuals working under IR35 rights similar to employees.
Seeing as contractors operating inside IR35 pay tax at a rate similar to an employee earning the equivalent, asking for benefits like holiday and sick pay, maternity or paternity pay is widely acknowledged as fair. But as of yet, contractors’ requests have not been listened to.
Contractors make their feelings clear
Of the 76% of contractors who believe employment rights should be attached to inside IR35 determinations, nearly all (68%) would like every benefit that an employee receives. The remaining 8% want at least some.
Contractors’ feelings about IR35 reform were explored further in this survey, which highlighted that 70% are of the belief the proposals are unfair on independent workers. This discontent about IR35 changes led around one in three (36%) contractors to state that they would only work on a project deemed outside IR35.
Unease about incoming IR35 reform
As a result of reform, much has been made about the future of contracting. Those most worried about the changes argue that it could lead to greater numbers of contractors being classed as inside IR35. This could be why 13% of the contractors surveyed are thinking about stopping contracting, whether that’s to retire early, seek a permanent role or work overseas.
FCSA has said this figure, when extended across the estimated 600,000 strong contractor workforce could equate to a loss of 78,000 independent workers.
Confusion about IR35 among sole traders
Another interesting statistic highlighted in the research is the 18% of sole traders who said they were readying themselves for IR35 reform. As you might know already, the IR35 legislation only applies to individuals operating through their own limited companies, which are often referred to as personal services companies. It does not directly impact sole traders.
Renewed calls for simplification of the rules
FCSA believes this is another indication that, despite HMRC’s best efforts to simplify the legislation, there is a clear lack of understanding surrounding the off-payroll working rules. The staffing body said this figure could be the result of a mistake made by HMRC recently, as CEO, Julia Kermode, explained.
“We made HMRC and HMT aware of the issue in our last consultation response which presented evidence that sole-traders were included in their stated “58,000 average monthly worker instances” captured by the public sector reforms. By definition, sole traders are outside the scope of IR35 legislation and therefore should not have been affected by the public sector reform, so their inclusion is a very serious error.”
This apparent confusion among individuals about IR35 led FCSA to explain that reform in the private sector should not be enforced. CEO, Julia Kermode, concluded: “Put simply, the evidence reinforces our view that the government should not press ahead with its proposals and a delay is essential.”
Before long, HMRC will publish the draft legislation for next year’s IR35 changes. This is expected to take into account the responses to the consultation, meaning that FCSA’s calls to simplify certain elements of the legislation could be included.
What does this mean for umbrella employees?
Of course, if you’re a contractor working as an employee of an umbrella company for a contract, IR35 does not apply. When working as an umbrella company employee you will already receive employment rights such as maternity/paternity pay, sick pay and a holiday allowance.
If you want more information about Parasol or joining an umbrella employee, visit our umbrella company page.