50% of contractors face IR35 issues

As the new IR35 reforms come into force in the public sector today, 50% of contractors are failing on IR35 and facing serious status issues.

That’s according to ContractorCalculator, whose findings from over 5000 IR35 reviews carried out by its employment status tool IR35testing.co.uk revealed that at least half of contractors will be facing issues regarding their IR35 status.

The responsibility for setting the IR35 status of public sector contractors now falls on public sector engagers rather than contractors, many of whom will stop working in the public sector should they be placed inside IR35 by their clients.

Thousands of public sector contractors are being affected by the reforms and IR35Testing.co.uk has witnessed a range of contractors across all sectors taking its test from nurses to IT contractors.

Analysing the 50% in the strong fail zone, ContractorCalculator found that:

• 58% are not allowed to substitute so are therefore providing personal service, making it much harder to stay outside IR35.
• 20% of the fails are told how to do their work. Without autonomy on how to complete work it is near on impossible to be considered outside IR35.
• 39% are not working on projects.
• 38% are required to work minimum hours and 29% say they could be asked to work on an alternative project.

Dave Chaplin, CEO and Founder of ContractorCalculator, said: “The level of workers we are seeing being caught by IR35 over the last two months is not surprising, particularly when we look at the types of workers using our IR35 review tool – many of them are working in the public sector as nurses and social workers. Close to 100 nurses who have taken our test have been found to be within IR35. We have been able to help over 5500 contractors to assess their status since we launched our enhanced tool in February and it has helped to reassure 1781 that they are operating outside IR35.

“Unfortunately, chaos and confusion abounds as public sector hirers grapple with the new legislation and contractors and others in the supply chain are being thrown into turmoil due to the uncertainty being created by these reforms. However, one thing is certain – HMRC will have some rich pickings if contractors continue to be engaged by clients and agencies when they are clearly within the IR35 rules.

“HMRC has attempted to achieve the impossible in a matter of months and its employment status tool is unreliable. I would urge agencies and hirers to consider using other means to assess IR35 status, otherwise they could find themselves with a considerable tax risk sitting on their balance sheets.”