A new survey shows 47% of contractors said the firms they work with imposed a blanket ban on contractors following the roll-out of IR35 to the private sector earlier this year.
Off-payroll legislation that took effect in the private sector in April has had a significant and damaging impact on contractors and the firms that rely on their talent, with many firms implementing a blanket ban on contractors, according to a new survey.
IR35 Shield’s IR35 Impact Survey of 3,750 contractors found 47% of respondents said that firms chose to impose blanket bans on contractors while 58% claimed firms moved “most” or “some” of their work out of the UK.
Half believed firms would have some long-term damage; 46% said firms seeking to retain contractors needed to pay more; and 65% of firms lost at least half their contractors. Moreover, 35% of firms cancelled projects.
Some 88% of on-payroll contractors have been told it must be via an umbrella company, but only 6% of contractors say they are happy to use one. 78% said they would be unable to detect a tax avoidance scheme. Umbrella companies act as an intermediary between recruitment agencies or clients and temporary staff, dealing with payroll issues and often helping reduce tax bills.
IR35 legislation was first introduced in 2000 with the aim of curbing disguised employment ie when people are essentially acting as an employee, but being treated, for tax purposes, as a contractor. In 2017 new legislation meant that the onus of evaluating IR35 tax status moved from the contractor to the hiring body or agency, with the legislation first being rolled out in the public sector and in April this year to the private sector.
It has been the subject of a lot of controversy, mainly because of the way it was introduced.
Dave Chaplin, CEO of IR35 Shield, said: “Our survey shows that firms shot themselves in the foot under the new Off-payroll rules. They were ill-prepared and ill-informed by a government which was hell bent on its drive towards so-called tax fairness. The pressure on businesses during the pandemic and mixed messaging fuelled the decisions of firms to issue blanket bans, leading to commercial self-harm. The bans meant that many firms cut off their ability to hire the best talent, leading to cancelled and delayed projects. 48% of contractors told us that firms moved some of their projects offshore – unnecessarily benching UK workers may not have been what the Treasury had in mind to increase the tax take.”
He added that some firms are now realising that the legislation is entirely manageable with a robust compliance process in place. He stated: “Those firms which implemented blanket bans as a knee-jerk reaction in the early days are now realising that they have no option other than to engage with the new rules and conduct proper assessments in order to attract the talent they need. It has been a challenging 2021, but it would appear that the blankets are starting to lift which is good news for contractors and for UK plc and the economy overall as we embark on a new year.”
Meanwhile, the government has launched a consultation on the role of umbrella companies following concerns about abuses, such as spurious charges and failure to provide employee rights including holiday and sick pay. The Treasury has said that it is “prepared to intervene where there is evidence of poor compliance with employment rights and tax obligations.”