Companies that engage contractors risk facing lengthy court battles and the possibility of six-figure settlements if they do not follow the public sector IR35 reforms, according to Qdos Contractor.

In 2017, a move took place to pass the responsibility for deciding the IR35 status of contractors onto public sector companies. The UK Government is also considering extending these changes to the private sector, possibly in April 2019.

Since the changes to IR35 in the public sector came into force, some large employers such as the NHS have been applying blanket IR35 decisions. This has left many contractors inside IR35 even though no fair assessment of their working arrangements occurred.

Contractors who are working inside IR35 pay taxes like employees, but they do not receive the same employment rights.

These contractors lack faith in HMRC, and inaccurate IR35 decisions has led some to file complaints in small claims court. The number of contractors doing so could rise further.

Seb Maley, CEO of Qdos Contractor, said: “We have it on good authority that in the public sector, contractors are taking clients and agencies to court to claim back the costs of wrongly working inside IR35. With private sector changes looking increasingly likely, there’s no reason why workers subject to incorrect decisions wouldn’t be prepared to do the same thing. Given the sheer size of the private sector, this could be a disaster.”

Qdos Contractor’s own research into contractors’ attitudes shows that 46% want to challenge blanket IR35 decisions. Overall, 95% believe that HMRC is handling IR35 in an aggressive manner; 30% said that they faced bullying into accepting certain working arrangements and 85% said that if they have to work inside IR35, then they want employment rights.