12 months since the IR35 reform came into effect in the private sector. The HMRC allowed a “soft landing” during those 12 months where financial penalties wouldn’t be issued for non-compliance.
Those 12 months are now up – so where do we all stand, especially as the tax authority has already stated that it has begun its IR35 compliance checks?
Still in a state of confusion it seems, especially when it comes to the HMRCs CEST tool. Looking at the most recent usage stats on the gov.uk website, the CEST tool is throwing out an “Undetermined” result over 20% of the time!
Only around 50% of the outcomes are “Outside” according to CEST. The fact that CEST works off the presumption that Mutuality of Obligation (MOO) exists in all engagements will be affecting these numbers, there is no option in the CEST tool to say there is no MOO.
According to a report published on the 9th February by the Finance Bill Sub-Committee there are a number of flaws in the plan for IR35 reform, especially around the CEST tool:
- CEST Tool cannot and should not be a substitute for law.
- A 20% “undetermined” rate means a significant number of people need additional support to identify their status if the off-payroll working rules apply.
- The continued absence of questions on mutuality of obligation within CEST means that many of those impacted by the off-payroll working rules do not have confidence in the accuracy of its results.
In addition, they found that 21% of freelancers reported their clients implemented a blanket assessment, and 11% were told to move to payroll without assessing IR35 status.
From a recruitment point of view, we do speak to a number of contractors who will only consider roles outside IR35 and due to the demands for skills they probably can hold out for those.
We cannot work out the exact take home of an outside vs inside contract as it depends on a few variables and we advise all contractors to take specialist advice from a good Umbrella or accountant, but as a general rule you will need a 25 – 30% higher rate inside to get the same take home as outside.
In fact, according to contractoruk.com, between October 2021 to January 2022 the variance in rates between outside IR35 contracts and inside IR35 contracts climbed to just over 24.2%
Unfortunately, we still have clients that will call us up with contract roles and when we ask if they are inside or outside, we get a reply of “oh we are not sure but we will work it out when we find someone”, not appreciating how the difference in rates can make a massive difference and potentially waste everyone’s time.
We would LOVE for all our contract roles to be outside as it would make our lives easier but alas, it is not for us to decide. However, we are happy to work with clients to see how their working practices can be adapted for freelancers, or advise on rate adjustments to get those hard to find skills and make the contract attractive