Government report on IR35 reform figures 'flawed', experts suggest

The report, published on Friday, found that most organisations found it easy to comply with 2021’s payroll IR35 reform on private and voluntary sector organisations 

Using commissioned research and HMRC analysis, it found half of group-level organisations said they found it quite easy or very easy to comply with the off-payroll working rules, while only a quarter (29%) reported finding it difficult.

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Around half establishment-level organisations reported finding it quite easy or very easy to comply with the reform, while a quarter found it difficult (24%). 

Dave Chaplin, CEO of IR35 shield told Reward Strategy: "Many of the comparative figures in this report are flawed."

"This is because on 18^th March 2020, at the first reading of the Finance Bill, Steve Barclay, Chief Secretary to the Treasury, announced that the Off-payroll reforms would be delayed by a year. With only three weeks until the expected roll-out date, most firms had already changed their workforces. Therefore, the periods compared in this report of March 2020 to September 2021 do not provide an accurate picture of the before and after scenario.

"Choosing March 2020 as the baseline is somewhat of a statistical howler and means the report paints a less disruptive picture than what occurred in reality."

The report says that In terms of the ongoing cost of compliance since April 2021 and until the time the research was conducted, around half of both establishment-level and group-level organisations spent between £1 and £999 per month (53% for group-level and 48% for establishment-level).

A third of group-level organisations (34%) and a similar proportion of establishment-level organisations (31%) spent £0 on monthly operating costs. 

Chaplin refutes this claim.

"The claim that up to a quarter of firms only incurred up to £999 cost to implement the reforms does not tally with the figure that over half of the firms had external legal help or lawyers. You won’t even get one day of a lawyer for £999. We know firms that spent more than six figures.

"The business costs are perhaps better summed up by the quote that contractors are increasing their rates by up to 35%."

An HMRC spokesperson said: “This reform has succeeded in improving compliance with the off-payroll rules, with more people who work like employees paying tax like employees, levelling the playing field for everybody else and bringing in the tax that is due under the law. 

“We have delivered an extensive programme of education and support to help customers to implement the rules and an overwhelming majority of organisations found our support helpful.

“It is nonsense to assert that most businesses had changed their workforces by March 2020.  Our analysis shows only 20,000 of the 130,000 workers identified who changed the way they work due to the 2021 reform had done so by March 2020.”

Employment expert Seb Maley, Chief executive of Leicester-based consultancy Qdos, was also sceptical of the study, saying it “paints a nice picture”, but he believes it is wildly misleading, and doesn’t illustrate the real impact of IR35 on contractors and businesses.

“This research fails to tell the full story of IR35 reform. Read this report and you’d think that the off-payroll rules have been plain sailing. It’s another government study to add to the growing pile of those which fail to reflect the reality of the situation. 

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“We’re being told that half of businesses have found it easy to comply with the off-payroll rules and that around eight in ten firms assess IR35 status on a case by case basis. These statistics paint a nice picture, but I would take them with a pinch of salt. True, more businesses are getting to grips with these rules, but it’s been a difficult journey. 

“The fact of the matter is that this study conveniently suits the government’s narrative around the off-payroll working rules, which is that there has been minimal disruption.”