4 in 10 businesses say IR35 reform is having a negative impact on their finances as one-year anniversary lands
Reform to the IR35 legislation, which came into force in the private sector one year ago in April 2021, has led to devastating economic consequences for businesses, according to a new study.
Research conducted by YouGov on behalf of IR35 lobbying body, IPSE, found that more than two in five organisations (42%) reported that reform has had a negative impact on their finances.
The study, which polled 501 businesses and came soon after HMRC’s recent response to the House of Lords IR35 inquiry, investigated the impact IR35 reform has had on businesses placing and engaging contract workers.
It found that despite half of UK businesses (49%) stating that they would not be able to achieve the desired level of growth and outcomes without the help of contractors, more than a quarter (28%) have reduced the number of freelancers they work with since last April.
1 in 5 carrying out blanket IR35 assessments
According to the study, nearly half (47%) of businesses said IR35 is a significant burden, with one in five admitting to making a blanket assessment, which places all contractors inside IR35 irrespective of their status – a non-compliant approach.
It also revealed that a quarter (26%) of businesses are using the government’s CEST tool to assess IR35 status. As many as one-fifth (22%) said they are not using any tools or software to carry out IR35 assessments.
Of those that used CEST, the survey revealed that it had led to a 35 per cent decrease in the number of contractors the business engaged.
Responding to the findings, Derek Cribb, CEO of IPSE, said: “While the media, over the past year, has mainly analysed the significant and damaging impact of the reforms on self-employed workers, today’s research shows that the changes to off-payroll working has also hindered their clients.
IR35 damaging business growth and recovery
“Businesses have long relied on freelancers to provide additional expertise and support. The changes to IR35 [..] has made it harder for them to hire contractors and has therefore made it even more difficult for them to grow during these turbulent economic times.
“If the government wants to help companies recover post-pandemic, then it needs to start by rethinking IR35.
“Self-employed workers provide a valuable service for businesses and without a governmental review or further reform, companies will find they aren’t able to hire the necessary skills and talent that freelancers provide and that they are recovering at a slower pace compared to international competitors.”