Contractors trust clients over agents on IR35 status

Contractors are more likely to trust end-clients than recruitment agencies to decide their IR35 status correctly under the envisioned off-payroll rules for the private sector, a survey shows.

Under the 2020 rules, private sector outfits that engage contractors will be responsible for (and liable when) setting the contractors’ IR35 status, said Qdos, which surveyed 1,400 PSCs.

When they are involved in the process as the ‘fee-payer’ (a term HMRC uses to identify the party paying the PSC), agencies are expected to carry the liability, the status firm said.

'Better-placed'

But contractors -- three-quarters of whom are already very doubtful the commercial sector will be ready for the changes, suggest recruiters are the least likely to get their status right.

In fact, 61% of PSCs believe engagers will be “better-placed” than agencies to “contribute to accurate IR35 decisions,” the Qdos survey found, with just 39% in disagreement.

“This viewpoint could stem from a contractor’s personal experience of the public sector changes,” said the firm’s Seb Maley, referring to the 2017 IR35 framework which the 2020 rules are set to be based on.

'Middleman'

He added: “Or it may be because they might perceive further complications or confusion arising from a middleman. Given contractors will tend to have more direct contact with the end-client than an agency, they could be of the opinion that these businesses will have a better understanding of the working arrangement.”

Yesterday, a chartered tax adviser supported what a majority of contractors seem to be implying -- that the decision about the IR35 status of PSCs that end-users engage is best left to end-users.

“If HMRC are insistent on taking responsibility for operating IR35 away from Personal Service Companies, they need to acknowledge that the decision as to whether it applies should always be for the end-client and not for intermediaries such as recruitment agencies,” said David Kirk, founder of niche tax consultancy David Kirk & Co.

'Widespread evasion'

He explained: “The main reason it should be the ‘employing’ body and no other party is because the IR35 tax bill is overwhelmingly about Employers’ National Insurance.

“If the end client is forced to decide if they are paying that bill – over 80% is made of Employers’ NI – then there is no real financial issue on the rest of it, save for expenses. It would also mean that there would be far less attraction in the widespread evasion that is reportedly going on in parts of the public sector, with people still being paid by contractor loans.”

'Illusion'

But Qdos’ Mr Maley, a former inspector of taxes, finds it hard to see such reform being made. It may not even be addressed in this month’s HMRC consultation on the 2020 rules.

He said in a statement last night: “In the public sector, it is the end-client that is responsible for setting IR35 status. Obviously, recruitment agencies have the opportunity to play an important role too, and it’s in their best interests to ensure status is set correctly given they carry the liability when operating as the fee-payer.

“But the government is under the illusion that public sector changes have been a success, so there’s nothing to suggest that things will be any different in the private sector.”