Exodus of contractors looms after IR35 changes in April

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Date: 16 March 2021

A building contractor holds his head in his hands

A new survey of freelancers has found that 50% plan to stop contracting in the UK after changes to off-payroll tax rules come into effect in April - unless they can get contracts unaffected by the changes.

These are the dramatic findings of new research by the Association of Independent Professionals and the Self-Employed (IPSE). One year ago, when the legislation was previously due to come into effect, 32% said the same thing, suggesting that the pandemic has sharpened freelancers' concerns.

Instead of contracting in the UK, the freelancers polled said they intend to:

  • seek contracts abroad (24%)
  • look for an employed role (17%)
  • stop working altogether (12%)
  • retire within the next year (11%)

The new rules mean that many self-employed people working for a client on a freelance basis will now be taxed as employees ("inside IR35"). However, there are widespread concerns that employers are not ready for the new rules. Nearly one in four contractors (24%) said their clients were either uncertain or had provided no indication of what they will do in response to the IR35 changes. A quarter (24%) said that their clients were planning to blanket-assess all their contractors as "inside IR35" and 21% will only engage contractors through umbrella companies. Nearly one in ten contractors (8%) said their clients were planning to cease using contractors altogether.

IPSE is urging the government to delay the changes to IR35, warning that the sector is not ready, especially after the financial impact of coronavirus. "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," said Andy Chamberlain, IPSE director of policy.

"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. It is not surprising, therefore, that so many freelancers are reconsidering their prospects in the UK workforce."

Dave Chaplin, ceo of ContractorCalculator and IR35 Shield, has warned that "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".

Chaplin estimates that 60,000 businesses, 20,000 agencies and 500,000 contractors will be impacted by the new tax rules.

He said: "Regrettably it's termination time for any hirer that is not ready for IR35 judgement day on 6 April - 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."

Written by Rachel Miller.

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