IR35 Review

Review of IR35 reforms one year on. This week marks a year since the IR35 reforms were implemented in the private sector – and the end of HMRC’s “light touch” enforcement.

Leaving aside what Gary Lineker might have to say about HMRC’s light touch, what has the last year shown us about IR35, and the future of contracting?

After an initial phase of panic, and of blanket bans on third party contractors in many large organisations, the contractor market has started to find its feet in a new regulatory environment. There is no doubt, though, that companies have struggled to engage third party talent and that that has held them back as they have looked to recover from the pandemic’s impact on their business.

Talk of light touch and heavy touch regulation paints a picture of HMRC on a quest for justice in a sea of tax evasion, but of course that isn’t a true reflection of the market. Where contractors are offering genuine independent services to customers, they are legitimately outside the regulations, and as companies and contractors have learned more about the new landscape, there has been a focus on properly defining what lies within and without the legislation. This is really the intention of the regulation, and it’s right that it happens.

Unfortunately, here there is another challenge. HMRC’s CEST tool really isn’t fit for purpose. In trying to provide answers by means of an automated algorithm, it simply cannot deal with the complexities of real life situations – and there are reports that up to a fifth of the time it can’t provide an answer at all.

All of this uncertainty and complexity is bad for the flexible market, and bad for business.

To support our customers in making good, well documented and rapid decisions and so enable them to find the resources they need, Vocative engaged with QDos. Through QDos’ custom (and HMRC approved) determination tool, our customers and contractors are able to have their engagements manually reviewed by an expert and make a supported determination: this has given them confidence in engaging with contractors off payroll where appropriate and meant that necessary expertise has been available.

What the next year will look like as HMRC change their approach remains to be seen. There are still blanket bans in place in some organisations – despite the fact that this is explicitly outlawed – but commercial pressure is likely to see that situation change. Companies who think carefully about how to engage talent and who have a robust, well documented and fact based approach to determinations will continue to be able to secure the expertise they need.

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