A quarter of contractors say their clients have already told them they will determine all engagements inside IR35, new research by self-employment trade body, IPSE, has found.
The survey, which polled more than 1,500 freelancers, also showed that over a fifth (21%) reported their client would only engage with them via an umbrella company, while 17 per cent said they still do not know how their engager will approach IR35 decisions.
A further eight per cent reported that their client will no longer work with contractors in any capacity due to the controversial changes.
IR35 reform in the private sector will be introduced on 6 April. The changes will shift the burden of determining employment status for tax purposes from the contractor to the end client (medium to large businesses). The only instance in which a contractor will continue to set their IR35 status is when their client qualifies as a small business.
The study found that the looming changes to IR35 are a significant concern to more than two-thirds (70%) of freelancers. And for those working via a limited company, who are more likely to be affected, this figure increases to 88 per cent.
In IPSE’s Freelancer Confidence Index for the last quarter of 2020, contractors cited government tax policy – like IR35 – as a key factor having a negative impact on their business over the pandemic.
This echoes HMRC’s findings in its report by the Behaviour, Insight and Research team, which revealed that freelancers wanted more information on how IR35 reform will affect their future tax returns.
Andy Chamberlain, Director of Policy at IPSE, said the research highlights the “disastrous impact” the changes could have not just on freelancers and contractors, but on hiring businesses too.
According to IPSE’s research, because of risk-averse IR35 decisions made by businesses, half of freelancers (50%) said they plan to stop working for themselves in the UK. However, 57 per cent of these also reported that they would continue if they found contracts deemed outside IR35.
Nearly a quarter (24%) said they plan to seek contracts abroad, 12 per cent said they would stop working in general and 17 per cent will look for a PAYE job.
Chamberlain said: “Our research shows that the added risk for clients has led to deeply concerning responses: almost a quarter of contractors said their clients were making blanket inside-IR35 assessments, while a fifth are only working with contractors engaged through umbrella companies and nearly one in ten are planning to stop using contractors altogether.
“We believe these are hasty decisions that will have long-term negative consequences not only for contractors, but for the long-term performance of these client businesses themselves.
“Contractors bring vital flexible expertise to businesses, which allows them to navigate periods of instability or change – periods exactly like the UK’s opening up from COVID-19 restrictions. We urge clients to continue engaging contractors and put in the time to make individual IR35 assessments.”
In light of its recent survey, IPSE has put forward policy recommendations which include an alternative arrangement to IR35 – the freelancer limited company concept where end-clients pay an engager’s National Insurance.
It also suggested the government should implement the recommendations from the Taylor review to provide clarity on employment and tax status.