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IR35 reform has driven a third of self-employed people out

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.”

By Contractor Weekly

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22 thoughts on “IR35 reform has driven a third of self-employed people out”

  1. Michael Cook

    With the demise of so many Limited Companies with contractors folding them As a result of entering contracts under IR35 or employment would it be informative to write an article on the potential loss of revenue for the government due to the amount of Bounce Back loans that will never be repaid as so many contractors liquidate???

    • Ajay Bandlamudi

      Hi Mic, We don’t have to worry much about BBLS. As we all know, the Bounce Back Loan Scheme (BBLS) was designed to enable businesses to access finance more quickly during the coronavirus outbreak. BBLS was available through a range of accredited lenders and partners. The scheme gave the lender a full (100%) government-backed guarantee against the outstanding balance of the facility (both capital and interest).

      The borrower always remained fully liable for the debt.

      Its Banks responsibility to approve loans as per the director’s credit score.

      So Even if the single director company is liquidated, the director of the company has to pay the BBL amount.

      and also these loans are insured, so the government is fully prepared and aware.

      • Johnny

        Good one Ajay. So when the government gets repaid all that loan money they can add it to the £350M / wk for the NHS.
        Ha ha ha nobody believes a word you say at CCHQ anymore, stick to more the gullible voters on the Daily Mail BTL.

  2. Geoff

    What many perhaps do not appreciate is that HMRC will regard this as the desired result. A success for them.

    • James Burn

      Indeed, the policy objective is the additional NI contributions. They regard the people stopping work or going overseas as an unpleasant but inevitable side effect.

      I don’t think they believe it is necessary to clarify what umbrella companies, workers, or end clients should do, as they see that’s the job of market forces. For example, if 62% of end clients provide SDSs, people can work for those who do. Then end clients who want to attract talent will have to provide them. They won’t intervene until there is evidence over several years the market cannot do the job.

    • Someone

      Exactly, I was going to make the same point but saw you have done so already.

      So regardless of what we and the rest of the industry may think, as far as HMRC is concerned they area clearly seeing the desired outcome.

  3. Jeremy

    This is the result that Sunak’s father-in-law (who owns Infosys) and all the other big ‘four’ consultancies who have an unhealthy relationship with central government lobbied successfully for. Kill the lone consultants and you will be able to put more of your own useless ilk into those roles at four to five times the cost to the business.
    This wasn’t taxation this was carefully planned lobbying to create extinction.
    The silence from recruitment companies, accountants and businesses will see their profits dwindle.

    • Lmc

      Interesting point. I would say that could almost be looked on as a conflict of interest, or insider dealing. Definitely not Kosher.

    • Johnny

      @Jeremy – Exactly right. Trumpism, brought to us by the same carbon copy think tanks.
      Next up £10K /yr for health insurance. Or die!
      The libertarian’s choice.

    • XY

      Exactly! The silence of IPSE on this and other matters tells me that IPSE hasn’t changed either – to IPSE, IR35 is existential, without it their membership would leave in droves.

      At least this way they only lost 30% of them.

  4. Gary Andrews

    Arguing the toss on details over how an extremist regime killed our sector is just their distraction. The fact they did it and persuaded the country we were no good tax dodgers when the opposite is true was their malevolent success.

    Fill your pockets while you can Bozo, Sunak and the rest of you kleptocrats, the worm is turning. Even gods banks got his comeuppance.

  5. MVL City

    The government won’t change anything, they couldn’t care less about contractors, they just want our tax money. Someone has to pay to keep the boat people in their hotels, mobiles phones, cash allowance whilst working cash in hand at the local car wash. Makes you wonder who are the clever ones, those who play by the rules, pay their taxes and try to do the best for their families or those who desert their motherland to live off those hard working tax payers.
    This country is run by amateurs.

    • Gary Andrews

      That’s the same narrative used in authoritarian regimes to blamestorm minority sectors (like tax cheating contractors, oh the irony).

      Those issues you list are real problems but minor compared to the hard solutions this populist government is forcing on us. Loss of livelihoods, increased taxation, loss of freedoms and employment rights, reduced healthcare, bungled pandemic with thousands dead, robbery of state funds. I could go on.

  6. Steve

    I’ve gone staff.. 90k down to 60k. I do as little as I can, don’t give a toss about the company and will be happy to be fired.. I’m also doing work on the side. All we have is meetings all day and discuss crap like what sould we call the department.. God I’m bored!!!!

  7. Ex-contractor

    This is what the govt wanted, small business put out of business.

    HMRC now get significantly less than before from me, plus making me and my family far poorer takes away from consumer spending, further loss to HMRC.

    But at least Sunak wins!

    Is a real shame there isn’t a single political party out there who supports the little guy.

    • Chris

      Yes the tax man gets chicken feed off me too now I’m a permie but it was never about the tax takings only ever to scrub us from the market place.
      Unfortunate that there is no political party representing us but even if there were, the small guy has been persuaded constantly to vote against his best interests by industrial scale propaganda, machine learning and targeted manipulation in ever more subtle ways.

  8. XY

    Exactly! The silence of IPSE on this and other matters tells me that IPSE hasn’t changed either – to IPSE, IR35 is existential, without it their membership would leave in droves.

    At least this way they only lost 30% of them.

  9. XY

    Hmmmm IPSE.

    For years they failed to do sensible things, campaigning for “certainty” (well, they got it, exactly as they were told they would get it)…

    So if IPSE get to engage with the government, we’re all doomed. They believe that their members would all leave if IR35 were sorted out to contractors’ satisfaction – no reason to stay in IPSE just for insurances.

    Really need a body to represent contractors that is prepared to disband after it achieves its aims.

  10. Graham

    “A third also said it was the cost of employers’ national insurance contributions, which they believe umbrella companies were passing on to them.”
    Of course they are. How else would it be paid?
    Are people really this stupid?

  11. Ajay Bandlamudi

    We don’t have to worry much about IR35, this is a good opportunity for talented and experienced people like us to negotiate for high pay.

    • Johnny

      Yes you’re absolutely right Ajay. It’s not the total destruction of industries we’ve been working and building businesses in for decades.
      It’s not even the ruthless assimilation of our livelihoods by large international corporations not subject to the same unworkable restrictions.
      It’s an opportunity, how silly of me.

  12. Hugh Marron

    We took out the BBL over the 6 years never used it, paid back 42k before the first anniversary due date, which left 8k outstanding over six years thought this would be a good idea, small over draft.
    On the first repayment Natwest reclaimed the full amount as if it was the 50k , just under 900 quid a month. Rang the Natwest told them i was expecting a lower monthly payment as it was only 8k left outstanding , they told me they were correct under there T&C.
    So i told the NatWest to have the lot back and closed the account, The high st banks must be awash with monies i would imagine other small business doing the same . Yet again the Gov knows , and lets the banks run wild.
    Hugh

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