Please note: This article was written after Kwasi Kwarteng's September 23rd announcement about repealing the IR35 reforms, but before Jermey Hunt's 17th October announcement declaring that the repeal would not go ahead.
Following on from our initial article discussing the potential repeal of the 2017 and 2021 IR35 reforms, the pressing question was, what are professionals in the contracting industry really thinking following the Chancellor’s announcement?
When we asked our LinkedIn network, the results gave a clear indication. Most people believe the repeal will benefit both businesses and contractors, with 60% of respondents choosing that option.
However, a not insignificant 13% believe that the reforms should stay in place, and 23% think that the April 2023 changes won’t happen at all.
One respondent to the poll, Andy Houghton, Compliance Associate, shared his views,
"I don't see many of those who have left returning to contracting. Personally, I have found an employed role that I see as a long-term future. But a lot who have left the market are coming towards the end of their careers, were not earning the same money they used to and didn't have a desire/need to continue to make the sacrifices. To say nothing of the stress of always being a potential target for an HMRC inquiry (IR35 has not been repealed, the onus has just been put back on the contractor)."
We decided to dig deeper, and asked a variety of our contacts for their thoughts.
Here are some of the responses, and discussions from our experts.
On the face of it, surely contractors and businesses should be delighted – it will be much less hassle for both parties, time to hire for businesses will be quicker, and so it seems logical that they’ll therefore be more open to hiring self-employed workers again.
“The previous reforms led to a reduction in the number of available contract roles and so, conversely, the repeal could see the return of an abundance of vacancies.
“Secondly, it has long been known that the time it takes to hire a permanent employee is significantly longer than the process for a contractor, and so, if the revival of contracting does come along with the 2023 repeal, organisations’ time-to-hire will inevitably reduce once more.
“Businesses could also benefit because it would take away the complexity of carrying out IR35 determinations and the backlash faced when applying blanket assessments/bans, and professionals working on an outside IR35 basis could be secured for lower day rates than they have typically required for inside IR35 positions, reducing hiring budgets.”
Companies will be less reliant on the big four consultancies which will result in more contracting opportunities.
Adam points out, “The 2017 and 2021 reforms to IR35 saw some businesses turn to consultancies to carry out the work they would otherwise have employed contractors for. This could be reversed and significant costs saved if firms choose to return to hiring self-employed workers.”
New contractors, who have never experienced working outside IR35 before, may be more inclined to work for lower rates, coming in under the client’s budget and undercutting their competitors, to ensure they get the work.
It could be argued that rates will stay the same as they are now because the April 2023 changes won’t affect the client’s budget, just the gross take home pay for the contractor.
Adam adds, “At the moment, many professionals won’t consider roles that are classed as inside IR35, so, if the repeal does go ahead in 2023, candidates will see a big increase in competition for contract opportunities as that determination falls back in the hands of the worker.
“With more candidates applying for open positions, this could lead to professionals compromising on their usual earnings in order to undercut the competition and secure a role.”
Whilst it’s a change back to how it was previously, it doesn’t mean everything will be just the same as it was before.
Will HMRC be more vigilant? Their approach used to be much more relaxed in the past, so will this change dramatically now?
Adam agrees, “Self-employed professionals will need to be wary. A key question following the Chancellor’s announcement is, will HMRC be more vigilant in investigating contractors who are potentially making the wrong assessments?”
Being a contractor is a lifestyle, not just another way of working, and most people’s lifestyle has evolved in the past few years thanks to Covid, working from home, etc. so the self-employed route may not fit anymore.
For those who have gone from contracting to a permanent role, are they going to give up that safety/security and get back in to contracting? It is a very different lifestyle and can be hard work – constant networking, searching for your next role, etc.
Will it give rise to a new generation of contractors? Maybe we won’t just be seeing the same old faces from 2017/2018 in the market.
Adam ponders, “It’s true that many people left the self-employed career behind in the run up to the IR35 reforms as the future of the contracting arena was uncertain, and many of those individuals may well be reluctant to return to the unpredictable lifestyle that comes with self-employed working.
“However, there will undoubtedly be a wave of professionals who have never contracted before and are curious to see if it’s the path for them. If the other predictions are correct – more contract vacancies, higher rates becoming the norm – it could prove to be a very lucrative decision for those brave enough to take the leap.”
Overall, a positive thing?
We also spoke to James Iannaccone, Regional Account Manager at Danbro, an organisation which provides specialist accounting and umbrella solutions to contractors, freelancers and small businesses. James shared his thoughts:
“The recent decision to repeal the IR35 reforms was, of course, a huge shock for many in our industry. That said, it’s certainly a promising development for the contracting sector overall.
“As we see it, anything that gives the contractor greater freedom of choice – and self-determination – is overwhelmingly a positive thing.
“It’s important to make the distinction, though, that the scrapping of IR35 altogether is a misconception. All that’s changing is that the ‘liability’ for determining someone’s employment status will be restored to the individual contractor from the start of the new tax year (April 2023).
“In essence, it’s very much ‘as you were’ prior to the reforms in 2017 (public sector) and 2021 (private sector), respectively. So, those who provide their services via an intermediary – such as a personal service company – will once again shoulder the responsibility for determining their own employment status and tax affairs. This should minimise the risk of legitimately self-employed workers being unduly impacted – and taxed as employees – which exists under the current system.
“Despite the Chancellor’s announcement, we’d still encourage anyone involved in such decisions to continue to proceed with caution and seek professional guidance from industry specialists wherever needed.
Adam concludes, “Overall, whilst at first glance it may appear so, the contracting arena will never be exactly the same as it was back in 2017, and it will be incredibly interesting to see the stance businesses take as we approach Q2/3 2023.”
We can see that opinions on the repeal of the IR35 changes vary greatly throughout the industry, but it looks like everyone can be sure of one thing – the future of the contracting landscape is still uncertain.
If you'd like to discuss how IR35 impacts your career or business, get in touch with our expert team.