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Reforms to IR35 have led to plenty of confusion and stress for contractors. Many people have been hesitant to warm towards IR35 and would rather not be classed within it.

It was recently revealed through tax adviser Qdos Contractor that most public sector contractors have passed the assessment, and are deemed as outside of IR35.

There has been concern that firms are ‘blanket-assessing’ contractors. In other words, they’re automatically placing them in IR35 just in case, so they don’t face fines. However, HMRC did warn firms not to do this as it could lead to people being falsely assessed.

Seb Maley, CEO of Qdos Contractor said: “Given that the responsibility of setting IR35 status now lies with the public sector client, the challenge lies in making sure clients and agencies are making well-informed, accurate decisions, and not simply placing their contractors inside IR35 to protect their liability. This would be short-sighted, and simply deter contractors from working with public sector bodies, jeopardising vital organisations and projects.”
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“With the right approach, there’s no doubt that reform can in fact be managed, as reflected in the marginal difference in public sector IR35 results pre and post reform. That there has only been a one per cent drop in pass-rate since changes were enforced just goes to show that it is entirely possible to work on public sector contracts and outside of IR35.”

PSC exodus

While most PSC have been deemed as ‘safe’, there are still concerns that those who are classed as within IR35 will lead an exodus out of the public sector to the private sector which currently doesn’t fall under the same rules.

According to a recent survey from ContractorCalculator, three quarters (76%) of public sector departments lost contractors after the changes were announced. This has caused plenty of delays and project cancellations, some of which have cost millions of pounds. 71% of projects were cancelled or at least delayed.

27% of contractors left the public sector after reforms began. 38% of contractors could not be replaced according to public sector departments. 52% of those who left the public sector are yet to be replaced.

CEO of Contractor Calculator, Dave Chaplin said: “Despite repeated warnings, HMRC completely underestimated the damage that the IR35 reforms would cause. These findings should be a wakeup call to Government, prompting a repeal of the legislation. Instead a private sector rollout of the changes appears more likely, which will cause even more damage.”

So while IR35 might not affect most contractors, it’s still affecting a big percentage of them. These results show that IR35 is far from over and that the reforms are still having plenty of impact on the way contractors work and how projects are delivered. This will only increase if IR35 changes are eventually rolled out to the private sector which is already a concern for many.

Learn more about our online accountancy services for contractors, or ask for an instant quote online.

About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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