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Clients Ignore IR35 Issues At Their Peril

It is now 5 months since the new off-payroll legislation came into effect in the private sector, which in combination with skills shortages and a tight labour market is creating a perfect storm of issues for hirers to grapple with.

In the run up to this year’s new legislation we saw many businesses making wholesale decisions to stop engaging contractors via their limited companies, and shedding the contingent workforce inevitably resulted in significant resourcing difficulties and project/KPI delays.

We have also seen many contractor assignments determined as inside IR35, whether genuinely the case or not, meaning that the individual contractors affected are taxed as employees but without any of the benefits or rights of employment.  Of course this also creates a very significant financial loss for the contractors unless they are able to negotiate a higher rate for their work.

A skills dichotomy has resulted where contractors with niche skills are more likely to be outside IR35 and due to current shortages in many sectors they are also more able to negotiate higher rates than their less in demand counterparts.

The vast majority of inside-IR35 contractors are looking for a new client

 Adapted from “The State of Off-Payroll” with kind permission of Inni Accounts

There is evidence that the vast majority of inside-IR35 contractors are actively seeking a new client, whether or not that contractors’ skills are in short supply.  Of course those with niche skills in sectors with shortages currently will be most able to find alternative assignments, so are a significant flight risk for the businesses engaging them.  For that reason, clients must ensure that they are taking sufficient care in their IR35 status determinations to properly consider contractors’ individual circumstances.

However, many clients are faced with the unpalatable fact that many of their contractors are inside-IR35, and their contractors are likely to:

  1. Leave as soon as they secure an outside-IR35 assignment elsewhere;
  2. Seek a higher rate to compensate for their reduced income;
  3. Feel undervalued and less engaged with their assignment.

The facts speak for themselves.  Doing nothing is not a realistic option for any business that is reliant on their contractor workforce, and clients ignore IR35 issues at their peril.


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