IR35 Poll Results

There has been a lot of interest into the potential impacts of the changes to IR35 proposed for April 2021. When I normally post on Linkedin, the post will get about 1000 - 3000 views, if I post about IR35, 7000+ views. IR35 is a hot topic.

IR35 has been with us for over 20 years, during that time there have been various tweaks, with the latest tweak moving the responsibility of compliance from service provider to client. (This has been the case in the Public sector since 2016).

To get an idea of the feelings behind this, I ran three polls. Many thanks to those that took part and voted.

Before we start, this is the results of questions asked with static answers. These questions were asked to my network and received by those that reviewed the polls on the Linkedin platform whilst the polls were running.

So the first poll was "Your thoughts on providing service on an "Inside IR35 basis". I added the following commentary:

"#IR35 #poll for #contractors because I'm just interested in what the results would be. Excluding FTC and assuming "Inside IR35" you will be expected to deduct employers NI and apprenticeship levy from the day rate, please vote one of the following options: (Not covered is day rate, it is assumed that in the scenario the day rate would be acceptable to yourself)"

With the options "I'm happy to do this", "Only when no outside options" and "Not at all, outside only".

The raw results were:

• I'm happy to do this : 8% (6 people)
• Only when no outside options : 28% (20 people)
• Not at all, outside only : 63% (45 people)

Prior to the poll, I had predicted that "I'm happy to do this" would score low compared to the other options but I was expecting the other options to be closer, this was quite the result but to dive into the figures and comments a little more.

Most of those voted identified as male. (As far as I could tell, please note I have restricted amount of information on this). If we focus on those identified as female the results look like:

• I'm happy to do this : 12.5% (1 person)
• Only when no outside options : 12.5% (1 person)
• Not at all, outside only : 75% (6 people)

In terms of diversity of ethnicity, "Not at all, outside only" is more diverse.

I had noticed, although the poll was intended for contractors, we had agents and an accountant vote, based on quick analysis 2 agents voted "Only when no outside options" and the accountant voted "Not at all, outside only".

The two agent votes are interesting and probably shows their position, they would rather Outside contracts were seen as outside but are having to find people for those where clients are blanket assessing. (Possibly).

However this is carved up, out of those that voted, most would not consider engaging in contracts deemed to be within IR35.

To address some of the comments that were raised:

• No option for "Only when the resulting additional tax burden, including expenses, is fully compensated for by the fee payer". It is difficult to cover every outcome, also this would have likely eroded the results for the "Happy to" and "Only when" options. Therefore to simplify this the scenario was one where the day rate was acceptable to yourself and it is assumed a contractor would expect higher rates to cover additional taxation burden.
• "Why not include FTC?". This poll was to cover contractors generally providing services on a B2B basis. (Whether this is a business the contractor directs and/or shareholder or an "umbrella business" where they have bought the business in but are ultimately an employee of). FTC is an employee model where the employer pays on a PAYE basis but the employment term has a defined end date. In terms of the initial question, FTC exists outside the remit of IR35 because it is a employer PAYE engagement. (To add my 2 pence, I believe FTC is an acceptable way to engage "deemed employees" as the employee will get employment benefits but FTC is not contracting).

The next poll was "As a contractor, do you invest and engage in pre-sales activities?" with the commentary "As part of my consultancy offerings I do a reasonable amount of pre-sales, including meetings and proposals. I also do this for other parties to help win business for them and for me. Just wondering if other contractors do this?". The options and results were as follows:

• Yes : 76% (25 people)
• No : 24% (8 people)

In terms of predictions, I had felt Yes would be the most popular answer but not quite by that margin. Personally, although I have nothing against agencies, I tend to operate directly with clients, with agency engagements being quite a small percentage of my overall engagements. (Nothing against agencies as I said but I have to be satisfied the engagement is actually Outside and not just a paper exercise). I know there are contractors which exclusively use agencies and the agents are likely to be doing that majority of the pre-sales activity of these contractors.

Comments relating to the poll were more around how the individuals were defining pre-sales activity.

The third poll is still running but its unlikely the results will change massively, the poll was "For those employed in the UK, is it important that employee rights are at least maintained at the current level.", the answers and raw results are:

• Yes : 100% (17 people)
• No : 0%

Now this poll could be opened up to "what are people willing to do to protect employee rights" but it was a simple poll.

It has been said that the change to IR35 could see a new category of "zero rights employment" being opened up though this is likely in the longer term to open claims of people deemed employees by a employer (this is what the client would be defined as) for compensation for not receiving those rights. This could lead to increased costs over just using the FTC model with the reputation damage that this would bring.

So what is the likely outcome? It's had to predict at the moment but here are a few of my predictions:

• The contract market is going to split in the medium to longer term, this will likely be down the line of B2B engagements operating outside IR35 and FTC/Agency PAYE temp engagements. Inside IR35 isn't contracting and as risks are realised though deemed employment, these engagements will be taken out of the contracting market and into the temp employment market.
• Experienced and established contractors will in the medium to long term adapt their offerings to help reduce the regulatory burden of clients adopting their services.
• There will be a contraction of contractors in the market, many who really aren't contractors at the moment but also flight of real contractors. Contracting is a hard way to make money, with PAYE salaries not being that far off (and this being the case since 2016) many contractors will start looking at perm roles, retire or stop serving the UK market.
• In the short term there will be a lot of disruption where clients are trying to blanket assess and most contractors not taking "Inside" roles. This will also greatly affect agencies that haven't adopted a consultancy mode of operation.
• Medium to long term, the current umbrella companies will need to adapt or die, the market they currently serve is likely to disappear, along with ill feeling pre and during the covid crisis from their "employee customers".
• Long term, the contractor market will die. As contractors leave the market, the barriers to access the market will likely be too high for those interested in joining. This will likely see rates rise considerably in the medium to long term.