Self-employed sector left in a ‘mess’ as changes to the off-payroll rules see more than a third quit
According to new research by self-employment trade body, IPSE, since IR35 reform came into effect in April this year, 35 per cent of contractors have either moved into permanent employment, retired, started working overseas or haven’t worked at all.
Of those still working in this way, more than a third (34%) are now operating through unregulated umbrella companies, while another third (36%) have been engaged in contracts deemed inside IR35.
The survey also revealed that contractors working on inside IR35 contracts have faced a significant fall in their income, with the majority (80%) reporting a 30 per cent drop, on average, in their quarterly earnings. A quarter of respondents, however, reported their income had fallen by more than 40 per cent.
A fifth of companies still making blanket IR35 assessments
According to IPSE, many organisations have not implemented IR35 reform compliantly.
End hirers are now required to give any contractor they engage with a Status Determination Statement (SDS), which confirms their IR35 status. However, two out of five (38%) of those polled said their client had not done this.
In addition, a fifth (21%) reported that their clients had also blanket assessed all engagements as inside IR35, with one in 10 (11%) businesses said to have stopped working with contractors altogether.
Of those who have been forced to work through umbrella companies, the research found that nearly a quarter (23%) are not happy with the umbrella company.
One of the key reasons (55%) these umbrella contractors said they were dissatisfied was because they couldn’t claim business expenses from the umbrella, due to the perceived nature of their engagement.
A third also said it was the cost of employers’ national insurance contributions, which they believe umbrella companies were passing on to them.
Contractors contribute £300bn a year to UK economy
Andy Chamberlain, director of policy at IPSE, said: “Contractors are the most productive part of the crucial self-employed sector, which overall contributes more than £300bn to the UK economy every year.
“Not only that, they are absolutely vital for economic recovery, providing invaluable flexible skills to businesses getting back on their feet and adapting. But just when this sector is needed most, it has been hamstrung by the changes to IR35.
“[…] IR35 (reform has) driven large parts of the contracting sector out of self-employment: they have made things needlessly and enormously more complex for those who remain.”
Government urged to clear up the ‘mess’ of IR35 reform
Chamberlain dubbed the results of the IR35 reforms a “mess” which the “government must clear up.”
He urged the government to “review the situation in the contracting sector and be open to radical steps based on that”, as well as set out “detailed regulations for how umbrella companies should operate.”
Chamberlain also added that the government needs to “clear the confusion across self-employment” by clarifying when people should operate as sole traders, limited companies or employees.
He said: “We are keen to work with government on this, but, as this research shows, it must take this seriously: it must recognise the mess the changes to IR35 have created and work to get a grip on the situation.”