A new survey of the contracting community reveals a picture of confusion and uncertainty ahead of the extension of IR35 off-payroll working scheme in April.
Contractors want help with IR35 and the message from a survey of 1400 companies is that they are most likely looking to accountants to get it.
With six weeks until the introduction of IR35 in the private sector, 45% of contractors surveyed don’t know if they should continue working via a limited company. And 42% say accountants will be their first choice to help them with IR35 determinations.
AAT guide to IR35
AAT has produced a technical guide to IR35 determinations, payroll and tax, which can be accessed in the Knowledge Hub.
Businesses call for delay
It’s not just contractors who are unhappy.
Last month major recruitment companies asked for a year’s delay for IR35. The call included big names such as Reed, Adecco, Harvey Nash, Hays and Manpower, together with the Recruitment & Employment Federation,
Similar pleas have been made by The Federation of Small Businesses and contractors’ representatives IPSE (Association of Independent Professionals and the Self-Employed) and a number of accounting bodies.
- How IR35 could raise costs for employers
- From railways to hospitals, how IR35 sent public sector off the rails
- Can you rely on the new CEST tool?
However, AAT doesn’t believe the Government is willing to consider postponing IR35 further. Instead, AAT is calling for a 12-month ‘soft landing’ period until April 2021.
AAT says soft-landing essential
AAT believes a soft-landing period is a practical way forward that would allow for greater consistency and understanding to develop without unfair penalties.
There is still deep dissatisfaction with the HMRC’s approach to determinations (see this analysis of winners and losers at tribunals – login required) and reservations about its CEST tool to help employers.
Brian Palmer, tax policy expert for AAT, said: “’The most realistic, sensible and helpful way forward is for the government to confirm a 12 month ‘soft landing’ period whereby no penalties or fines will be imposed on anyone who can demonstrate they have taken all reasonable steps to comply.
“This type of flexible safety net is essential in providing some certainty and reassurance to employers and contractors alike.”
More survey findings
The survey of 1400 contractors was carried out by umbrella company Parasol. Its key findings were as follows.
- 70 % believe private companies will lose out because of IR35 reforms.
- 72 % believe there will be a loss of vital skills as a result.
- One in five contractors still don’t know about the extension of IR35.
- More than 50 % of respondents also said they had paid for an IR35 contract review.
- 39 % took out insurance policies to cover themselves in case of an IR35 tax investigation.
Clarke Bowles, Head of Key Accounts at Parasol, said: “One of the key issues around the changes is a lack of understanding of what the new rules will mean in practice.
“Our study highlighted confusion from UK contractors, but we also know from the recruitment firms and agencies we work with every day how they too have struggled to understand what their responsibilities are with end-clients to manage compliance effectively.”
AAT understands the importance of being well informed and has engaged one of the top IR35 experts in the country to write a technical guide for members. This can be accessed by visiting the AAT Knowledge Hub.
Accountants need to replace lost clients
An estimated 3.9million contractors work in the private sector. It is expected that many will be forced to take up payroll positions, or will opt to retire, resulting in company closures.
AAT Licensed Accountants, in particular, should be considering the implications of this and drawing up plans to replace lost business.
David Nunn is Content Manager at AAT.