Half of freelancers will stop contracting in UK over IR35
Freelancers are unhappy with the change
Half of freelancers intend to stop contracting in the UK because of a change in the law that will tax so-called “disguised employment”.
The new rules, known as IR35, make sure that a contractor, who would have been an employee if they were providing their services directly to the client, pays broadly the same tax and National Insurance contributions as employees.
The change, which is intended to prevent tax avoidance, comes into effect in April but has been met with dismay by many freelance workers who prefer to manage their own tax affairs.
Daily Business reported last month that television and radio presenter Kaye Adams secured a further victory for freelancers after HMRC lost its attempt to claim she was an employee.
New research by IPSE (the Association of Independent Professionals and the Self-Employed) reveals that 50% plan to stop contracting in the UK, up from nearly a third (32%) at the same time last year, when the legislation was previously due to come into effect. The rise suggests the pandemic has sharpened freelancers’ concerns.
Instead, they are planning to seek contracts abroad (24%), stop working altogether (12%), seek an employed role (17%) or retire within the next year (11%).
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Nearly one in four contractors (24%) said their clients were either uncertain or had made no indication of what they would do in response to the IR35 changes.
IPSE is urging the government to further delay the changes to IR35, warning that as one in four contractors’ clients are either uncertain or have not said what they will do about the changes, the sector is clearly not ready for them – especially after the financial impact of the pandemic.
Andy Chamberlain, director of policy at IPSE, said: “The pandemic has done disproportionate financial damage to the self-employed sector. After this it simply cannot take the added hit of the changes to IR35.
“This research shows that not only are a large proportion of businesses not ready for the changes, many others are responding by either ceasing to engage contractors altogether, or forcing them inside IR35 or into umbrella companies – both of which will slash their incomes.”
Dave Chaplin, CEO of contracting authority ContractorCalculator and IR35 Shield, says any firm yet to conduct an IR35 status assessment on its contingent workforce may need to consider terminating its contracts to avoid considerable financial risk until due processes are put in place.
He says 60,000 businesses and 20,000 agencies are set to be impacted by the new tax rules and spells out the risks for those firms that are not ready:
– Any contract which overlaps and continues after April 6th, for which the client hands an “inside IR35” assessment to the agency, will generate a considerable extra unplanned cost for the agency. The agency will incur 13.8% Employers’ NI on top of the contract rate, which they will have to fund because it cannot be lawfully deducted from the contract rate.
– For the client, if the contractor is “inside IR35” and they have not passed the determination to the agency, then they are the “fee-payer”, and worse for them, due to an inherent legislative flaw, the money passed to the agency must be treated as employment income, which means a new Employers’ NI bill of 13.8% on top.
– For contractors who are “outside IR35”, the issue does not arise.
Mr Chaplin said: “Regrettably, it’s termination time for any hirer that is not ready for IR35 Judgement Day on April 6 – let your contractors go, get your strategy in place and start assessing your contractors again under the new rules and with new contracts. If you don’t, you will have a mess on your hands and significant additional costs to bear too.
“The message is clear – wave hasta la vista to your contractors and hope that they’ll be back, once you’ve assessed them correctly.”