Half of contractors are failing IR35 test

HMRC
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 per cent in the strong fail zone, it was found that 58 per cent are not allowed to substitute so are therefore providing personal service, making it much harder to stay outside IR35. Furthermore, 20 per cent 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.
Additionally, 38 per cent are required to work minimum hours and 29 per cent say they could be asked to work on an alternative project – such factors indicate a very strong ‘mutuality of obligation’ between the client and the contractor, an issue that crops up in many IR35 cases in court.
 
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.
 
“The new reforms are already driving contractors out of the public sector into private sector firms who now have a significant commercial advantage to attract the best talent.  The public sector is going to lose out all round.”
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