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Concern over IR35

One in three self-employed ‘to stop contracting’ over tax change

Office, flexible working

Freelancers are thinking of changing work patterns

One in three freelancers are planning to stop contracting because of a change in the tax rules – known as IR35 – due to be introduced to the private sector in April. 

One in seven (13%) plan to find contracts abroad, one in ten (11%) intend to stop working or retire early and almost one in ten (8%) will move into employment.

Half of freelancers also said they will only continue freelancing if they can find contracts to which the new off-payroll working rules do not apply. 

IR35, which was introduced in 2000, is an anti-tax avoidance rule that applies to all contractors and freelancers who do not fall under HM Revenue & Customs’ definition of being self-employed.

It allows HMRC to collect additional payment where a contractor is an employee in all but name.

From April, every medium and large private sector business in the UK will become responsible for setting the tax status – or IR35 – of any contract worker they use, as a result of the changes which were introduced in the 2018 budget

Contractors found within scope of the regulation will have to pay similar tax to full-time employees, despite not receiving holiday, sick pay, or any other benefits.

Tax experts have predicted IR35 could reduce a worker’s net income by up to 25%, costing the typical limited company contractor thousands of pounds in additional income tax and NICs.

The change is likely to hit a large number of IT contractors, particularly those who left the public sector in 2017 – when the reforms were first introduced.

According to research by IPSE (the Association of Independent Professionals and the Self-Employed) almost all (97%) of freelancers said they are either “fairly” (18%) or “very” (79%) concerned about the changes to IR35.

Businesses and contractors are simply not ready for the ill-planned and hugely disruptive changes to IR35

– Andy Chamberlain, IPSE

The research found 92% think that working inside IR35 and paying employee National Insurance Contributions without employee rights is unfair. 

In terms of client businesses, two out of five (39%) of freelancers said their clients will stop using outside-IR35 contractors. Instead, they will either make blanket-assessments that their contractors are all “inside IR35” (20%), engage them through umbrella companies (14%), move their contractors onto PAYE (13%), or stop engaging contractors altogether (11%). 

However, 35% of freelancers also said their clients are uncertain (16%) what to do or have not said (23%) what they will do about the changes to IR35. 

Andy Chamberlain, Deputy Director of Policy and External Affairs at IPSE, said: “This survey shows that the changes to IR35 are a clear and imminent danger to the self-employed sector and the businesses they work with right across the UK.  

“Two out of five freelancers say their clients are not planning to continue using outside-IR35 contractors and many have already begun laying off their contractor workforce. It is unsurprising, therefore, that almost all freelancers say they are worried about these changes. 

“We need to be clear: this will do enormous damage to this £305bn-a-year sector, which will have disastrous consequences for the wider economy.

“Businesses and contractors are simply not ready for the ill-planned and hugely disruptive changes to IR35. Many businesses have not even decided how to respond yet – and many more are planning to break the rules of the legislation by assessing all their contractors as “inside IR35”. 

“The government must urgently delay the changes while a full and independent review is carried out. If it pushes ahead regardless, it will do untold damage to freelancers, the businesses that rely on them and the wider economy.”

See also:

Campaigners welcome review of IR35 contractor rules

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