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IR35 reform to cost 1 in 3 contractors over £20,000

One third of contractors to miss out on over £20,000 because of IR35 reform

Contractors have revealed major concerns about the potentially devastating financial impact that recently enforced IR35 reform will have on them.

The study, carried out by insurance provider Simply Business, polled 250 contractors from a range of sectors including IT, business management, finance, design and marketing.

It found that a third (32%) expect to miss out on more than £20,000 in take-home pay now the new rules have come into effect. A further 1 in 5 expect to lose between £10,000 and £20,000.

As the research highlights, the difference financially between working outside or inside IR35 can be huge. Contractors operating inside the legislation or under PAYE can take up to 25 per cent less pay home after tax.

‘I lost an eighth of my pay’ due to IR35 reform 

IT contractor Kevin Neal, said: “IR35 reform means I have lost an eighth of my pay to tax, fees and pension, which will have a substantial impact on my income. I feel persecuted for doing nothing more than trying to earn a living. I pay my taxes, I always have.”

Another contractor, Bill Cunnew, added: “I contracted for 26 years through my own limited company, I earned good rates but due to IR35 the banking and insurance sector has just stopped taking LTD company contractors. 

“After one year out of work I was forced to take a permanent job on a lot less money, as a result I am now paying about 25 per cent of the tax I paid as a contractor.”

Despite controversial reform in the private sector being delayed by one year because of the Coronavirus pandemic, more than half (52%) of contractors said they still weren’t ready for the rollout. 

A fifth fear being taken to court or fined

Of those, 29 per cent said they had reviewed their existing contracts to ensure they were compliant with the new off-payroll rules and 10 per cent admitted still having conversations with clients about the assessment process.

Alan Thomas, UK CEO at Simply Business, said: “Contractors are a vital part of the economy, and with one in three now expecting to miss out on over £20,000, the impact of the new rules will be felt up and down the country.

“We know the last 12 months have been especially difficult for contractors, and that despite IR35’s delay, many still find the legislation difficult to understand. So, it’s unsurprising that nearly a fifth of those surveyed (18%) are concerned about not making the right changes and fear being taken to court or getting fined later down the line.

“Clearly, the IR35 reform has complexity, and while it’s vital that contractors prepare as much as they can, we would call for more support and simplicity in the process.”

By Contractor Weekly


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4 thoughts on “IR35 reform to cost 1 in 3 contractors over £20,000”

  1. Gary Andrews

    Some people have lost an eighth of their pay? Wishful thinking, where are you doing your research for these articles?

    Huge swathes of corporate Britain that have blanket banned the use of domestic contractors. It’s like the miners’ strike out there but no one’s noticed under cover of Covid, Brexit and the complicit media.

    • Chris Keller

      Just turned down a new contract on this basis. The take home on like for like worked out to be a 12.37% reduction.

      Where does the comment “Wishful thinking” come from. Run the numbers on a series of different contract rates and the claim “Some people have lost an eighth of the pay” is entirely defensible.

  2. Arnold Foster

    Closed my Business and gone Perm, this ir35 is the bane of contractors lives

  3. Brian W.

    Ir35 is demotivating, and has reduced the incentive to work harder as increasing tax rates diminish return on effort applied. Some Colleagues have retired early or are looking elsewhere outside of the sector resulting in a loss of experience and skills too. I for one will be limiting hours post Blanket status.that was applied to my sector. I know of a quite a few others taking the same approach. The project is CNI so ultimately the Gov ends up paying more because of the extra time now required to complete. So whilst we are all being encouraged to work to boost the economic recovery there is less motivation to work more. Projects/ tasks will take longer to complete ending in a situation where no one wins.

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