Fears rise for impact of IR35 on contractors and businesses

A new survey shows fears for temporary contractors if IR35 is rolled out to the private sector, with the FSB calling for a delay in the roll-out of the regulation.

employee using calculator


Three fifths of medium and large private sector businesses are worried they will miss out on skilled contractors and temporary professionals when IR35 legislation is expanded to the private sector next April, according to a survey by recruitment specialist Robert Half UK.

Under the regulation, which already applies to the public sector, larger businesses will become responsible for determining the employment status of any contract worker they use. If the contractor is deemed to fall inside IR35, the worker will be required to pay the National Insurance contributions and income tax due via PAYE or via an umbrella company.

The aim of IR35 is to avoid tax avoidance by workers and the firms that hire them through ‘disguised employment’ ie the supply of services via an intermediary, such as a limited company, which would be delivered by an employee if the intermediary was not used. Contractors and other freelancers fear, however, that the new rules will discourage businesses from hiring freelancers altogether, as it puts them at risk of being penalised if they wrongly categorise workers.

Two fifths (42%) of medium and large private sector organisations polled by Robert Half are also concerned about losing current temporary workers to the new IR35 rules if they cannot renegotiate employment contracts in time. However, only 15% plan to offer more competitive pay rates to their contractors to secure them.

A third anticipate demand for temporary workers increasing in the next months.

Matt Weston, Managing Director, Robert Half UK, said: “Business leaders are concerned about the impending IR35 rules and its potential impact on the UK’s temporary talent pool, particularly as firms look for a blend of high performing temporary and permanent employees to pursue growth strategies in 2020.

“A number of businesses are already considering measures to stay compliant with new regulation and finding ways to compete for skilled talent who favour flexibility and autonomy.”

Meanwhile, the Federation of Small Businesses (FSB) has called for HMRC to delay the roll out of its upcoming changes to the IR35 rules. Mike Cherry, national chairman of the FSB, said: “The self-employed certainly don’t need an IR35 rule change that makes hiring contractors less attractive. We’ve already heard noises from big corporates to indicate that, if this change does take effect in April as planned, they’ll pull the plug on sole traders. Common sense dictates that a delay to the April roll-out of these rules is now needed.”

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