A new survey shows the scale of the impact of IR35 changes on freelancers.
Nearly a third of freelancers are planning to stop contracting in the UK because of the roll-out of off-payroll legislation to the private sector in April, according to research by the Association of Independent Professionals and the Self-Employed [IPSE].
The Government says IR35, the off-payroll legislation, aims to ensure employers don’t avoid tax by contracting out regular work that an employee would do, but contractors are concerned that it is so complex that employers will impose it in a blanket way and that if they are deemed to be disguised employees, they could end up being forced into a situation where they are taxed as an employee while receiving none of the perks, such as security of employment, no sickness, maternity/paternity or holiday pay, pension and employment rights.
The IPSE survey of 3,841 freelancers, 84% of whom are IPSE members, found 13% of freelancers plan to find contracts abroad, 11% plan to stop working or retire early and 8% plan to 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.
97 per cent of freelancers said they are either “fairly” (18%) or “very” (79%) concerned about the changes to IR35. 92 per cent also said they 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 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 per cent of freelancers also said their clients are uncertain (16%) about 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…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.”
A protest was held by hundreds of contractors and freelancers in Westminster this week and organisations including the Recruitment and Employers Confederation are calling on the new Chancellor to rethink the legislation, saying most employers find it overly complex.
Dave Chaplin from ContractorCalculator says up to a quarter of a million contractors could go on strike if the tax is rolled out. “The devastation is happening all around us already.
He said: “We are hearing daily that yet another firm that has opted to blanket ban contractors and that the contractors are planning to all jump ship, leaving their clients projects in disarray. The brain drain and ramp up time will cost firms dearly, not to mention the likely rise in contract rates because skills will not be available to them.”
He added that contractors don’t trust HMRC’s recent announcement that it would not introduce the tax retrospectively unless fraud was suspected and is calling for a guarantee on this to be written into statute.