Ongoing IR35 Challenges

IR35 is continuing to cause concerns for employers and contractors. The government recently confirmed that after an extensive employment status consultation launched in 2018, they will not align tax status and employment rights. This means that contractors working within the IR35 rules will work as “zero-rights” employees. They are paying tax as employees, but receive no holiday pay, sick leave, or paid maternity leave.

Zero-rights employment has been an issue since the legislation was introduced in 2000. When IR35 was changed in 2017 and 2021, the situation for contractors was made worse. Many companies did not want to engage contractors due to the new regulations, which shifted the responsibility from the contractor to the business paying the worker. Many companies insisted contractors use an umbrella company or the alternative was to have their contracts terminated.

Contractors are now facing situations where working inside of IR35 means paying more than 30% out of pocket with none of the benefits and rights of an employee at the same company. The latest response from the government continues to place the burden on contractors and could cause a shortage of skilled workers at a time when there is high demand for talent. These workers will not want to shoulder the expense without any benefits.

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