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7th January 2021

Survey reveals persistence of IR35 ignorance but Initiate is prepared

IR35 changes will impact how the industry works but Initiate and the PDSI Group have been researching this for 12 months in preparation and we are confident we are ready.

The IR35 rules govern the tax status of an individual working as a contractor (or freelancer) and whether, for taxation purposes, they ought to be deemed an employee on the payroll. Businesses that fail to exercise reasonable care in determining the IR35 tax status of a contractor could face significant fines.

Recruitment firm Randstad Construction, Property & Engineering (CPE) conducted a survey of 204 medium and large UK construction businesses in the first two weeks of November.

It found that 26% remain totally unaware of the upcoming IR35 changes and their consequences. Fewer than half (44%) are aware that they need to prepare for these changes or are currently part way through this process.

Only 30% have a plan already in place.

Originally set to come into effect from April 2020, the implementation of IR35 legislation changes was postponed until 6th April 2021, due to the coronavirus pandemic. The changes mean that medium and large businesses in the UK will be responsible for determining whether IR35 rules apply to those working for them as contractors, whereas previously the individual contractor was responsible for making this decision.

Only 24% said that they have understood the government’s IR35 guidelines – 76% admitted to being not up-to-speed or still having outstanding questions.

Randstad CPE managing director Owen Goodhead said: “Worryingly, despite having an extra 12 months to prepare, our latest findings reveal that the majority of construction businesses aren’t ready for changes to IR35. Tax regime changes are likely to have fallen on the backburner given the upheaval generated by Covid-19, with survival mode kicking in for many. But these changes will have a deep impact on recruitment and HR processes and operations, with the need for in-depth stakeholder training and deployment of new management tools.”

The construction sector has a heavy reliance on contract workers, 98% of firms questioned in this survey reported using them, so the impact of the changes in April is set to be wide-ranging.

Owen Goodhead continued: “It is still possible to prepare for IR35, but businesses need to act urgently, to start impact assessments and seek high quality advice. To put things into perspective, offers made to contractors now on the basis of a six-month contract will last beyond the 6th April 2021 and will therefore be in scope. This means the onus will be on the employer to determine the IR35 status of contractors and exercise reasonable care in doing so.”

Is your business prepared for upcoming changes to IR35 in April 2021? (%)

  • We aren’t aware of what the IR35 changes are or their impact 26%
  • We haven’t started our preparations for IR35 yet, but will be doing so 18%
  • We have started preparations for IR35 changes, but we aren’t there yet 26%
  • The business is prepared for the changes and has a plan in place 30%

Do you feel that your business can cope with additional costs as a result of IR35? (%)

  • Unsure, as I don’t know what the additional costs might amount to 43%
  • No, I don’t foresee any additional costs 13%
  • No, in the current climate we will struggle 19%
  • Yes, we have assessed the costs and have sufficient resource 25%

Further reading:

IR35 changes confirmed for April 2021:Will Clayton, employment partner at Constantine Law, explains the implications.

Got a story? Email news@theconstructionindex.co.uk