More than a third (35 per cent) of contractors in the UK have become permanent employees, have retired, gone to work abroad or ‘just don’t work’ since the IR35 tax legislation. was revised earlier this year.
This is according to the Association of Independent Professionals (IPSE) which has found 35% fewer freelancers among those questioned since April 6, when the government passed the delayed reform.
“This research shows the devastating impact that the changes to IR35 have had on contractors, unnecessarily compounding the financial damage from the pandemic,” said Andy Chamberlain, director of policy at IPSE. “Now, just when entrepreneurs are needed most – amid growing labor shortages across the UK and particularly in transport – government decisions have driven out a third of the sector.”
The register asked IPSE how many tech professionals were included in the survey, but we have yet to receive a response.
In March, the Learning & Work Institute warned that the UK was heading for a ‘catastrophic’ digital skills shortage, with the number of young adults enrolling in computer subjects at GCSE (the exam that children in UK Uni go to 16 years old, before the last two secondary / high school years), down 40% since 2015.
One ex-entrepreneur who spoke to us said the numbers seemed “slight” and freelancers are “like me, quitting contracting every day to travel to the Middle East”.
What is IR35?
IR35 is a tax reform that was unveiled in 1999 by the UK tax authorities. The latest regulatory change – which came into effect in April 2021 – requires UK medium and large businesses to define the tax status of their subcontractors and self-employed workers. Previously, this was set by the contractors themselves.
Entrepreneurs who fall within the scope of the legislation – that is, within IR35 – will have to pay more tax than they realize.
The reforms are part of the government’s crackdown on disguised employment, where workers behave like employees but avoid paying regular income tax and national income contributions by billing for their services through corporations Personal Services (PSC), which are taxed at lower corporate rates. .
The measure came into effect in the public sector in 2017. The UK government hoped the reforms would recoup Â£ 440million by getting 20,000 entrepreneurs online.
HMRC estimates that only one in 10 entrepreneurs in the private sector who should pay taxes under current rules is doing so correctly. He estimates that the reforms will recover Â£ 1.2bn per year by 2023.
The IPSE also found that 36% of the people questioned had a job considered to be covered by IR35, four of them in five declaring that they had seen their quarterly income fall by 30% on average. Some permanent employees among The Reg the readership might not have much sympathy for the generally well-paid entrepreneurs, judging from past comments.
Some 38 percent of entrepreneurs surveyed by IPSE said their clients had not yet provided them with a status statement, as required by IR35. One in five clients said they rated all contractors globally as being within IR35.
âNot only did the changes to IR35 cause much of the contracting industry to quit self-employment, they made things unnecessarily and enormously more complex for those who remain. Entrepreneurs now find themselves with a myriad of different and complex ways of working – each with their own pitfalls, âsaid Chamberlain.
“They are now divided between those who still manage to work outside of IR35, those who work in unregulated – and sometimes unscrupulous – umbrella companies, those who work within IR35 for lower pay and without rights, and others now on the salaries of clients or agencies, âhe added. .
Chamberlain called the situation a âmess,â adding, âNow the government needs to clear it up. changes completely. “
Around 34% of those surveyed now work through unregulated management companies: one in four people say they are dissatisfied with these companies and 46% say they are satisfied.
Campaign groups have called for umbrella companies to be regulated, and UK.gov has bowed to pressure to control the industry.
The IPSE figure did not necessarily ring true for everyone. Dave Chaplin, CEO of IR35 Shield, which develops tools that he says help contractors manage compliance, said: The market is bottoming and is starting to grow again.
âMany companies choose what they may have considered [to be]the easy option, trying to remain cost neutral and risk free by pushing for a general ban on subcontractors from operating through PSCs (personal service companies). But some have since realized that this puts them at a disadvantage in the competitive talent market compared to companies that have processes in place to allow them to continue to hire contractors on a ânon-IR35â basis.
âFor companies with a large number of entrepreneurs, from a practical point of view, they concluded that they should hit the ‘IR35 reset’ button and ban short-term PSCs while they were putting in power. in order in their house, and are now ready to hire again, also having a robust process in place. Â®