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IR35 reform sparks talent drain as contractors head overseas

Latest IPSE research uncovers concerning impacts of the off-payroll working rules

Over a fifth of the UK’s contractors are planning to abandon their domestic clients and instead seek contracts abroad due to IR35, in a damning indictment of the legislation’s impact.

This is according to research released in June by IPSE (the Association of Independent Professionals and the Self-Employed), based on a survey of 1500 contractors which found that 22% plan to contract with overseas firms.

According to YouGov, an international research data group, survey sample sizes of 1500 or 2000 individuals are at lower risk of sampling error. This means that results are, broadly, considered to be statistically representative of the population at large.

As such, the results illustrate the impacts of the off-payroll rules on the UK’s contractor workforce overall, with IPSE’s Director of Policy calling on the government to “rethink its approach to IR35”.


Firms’ handling of IR35 drives talent drain

Since the introduction of the off-payroll working rules, many contractors have been forced to operate on the payroll of end-clients, or within the scope of the legislation – regardless of their true IR35 status. 

This has seen them taxed as employees rather than as genuinely self-employed workers. Such risk-averse positions have contributed to the talent drain revealed by IPSE’s research, which also highlights other key issues related to IR35.

One of the major findings is that up to 10% of contractors cite the off-payroll working rules as the reason they’re not currently working.

Additionally, within the last 12 months, roughly half (53%) of freelancers have walked away from contracts where they would have been placed ‘inside’ IR35. Almost two-thirds (62%) of contractors plan to avoid such contracts moving forward.

IPSE’s latest research also follows similar findings it published in April this year from another survey. Those results revealed that almost 80% of contractors consider government tax policy to be the most detrimental factor affecting business performance.


Research should “raise alarm bells”

Commenting on the findings, Andy Chamberlain – Director of Policy at IPSE – called them “concerning” but also, ultimately, “unsurprising”.

“IPSE warned government for years that its plans to reform IR35 would make being in business too difficult, and that many genuine freelancers would turn their backs on contracting in the UK as a result”, he said. 

“Freelancers and contractors are refusing to be corralled onto company payrolls. Instead, they are working with firms that respect their status as independent businesses, both at home and abroad. 

“Many others, however, felt that it made more sense to retire early, or stop working altogether, rather than carry on in an increasingly unfavourable environment for self-employment, overseen by this government. 

“Most alarming of all is the government’s decision to bury its head in the sand, rather than changing course and acknowledging the damage its own rules are inflicting on British businesses. This is a damning legacy for a government which has prioritised labour market participation”, he added.

Chamberlain also said that the trend was likely to “raise alarm bells for firms struggling with skills shortages”, and suggested that the government “must rethink its approach to IR35” if it is “serious about fostering a thriving economy”. 


  • KH says:

    What are some good channels for finding overseas clients?

  • Geoff says:

    It would be interesting if there were a post implementation review of IR35, comparing the extra tax taken vs adverse impact on business unable to find appropriately skilled technicians, increased cost of technicians, costs of compliance, costs of unnecessary intermediary umbrella companies, lost tax through early retirement and those choosing to work overseas as highlighted above.

  • John says:

    I’ve been taking on clients overseas for years for exactly this reason.

    After a while, you start to realise — if you’re working with clients overseas, exactly what benefit are you getting staying in the UK? Why stick around at all?

    No wonder digital nomad visas are all the rage. You could be working in the sun, paying a fraction of the tax and halve your cost of living.

    The UK government needs to get with the program, or the brain drain will be real.

  • AG says:

    Liz Truss had the right idea on this. IR35 should be scrapped, a company is a company. I will be rebasing myself and family outside of the UK in the next 2 years as a direct result of this restraint on entrepenurial businesses.

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