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IR35 reform seen as bigger threat to contractors than COVID-19 and Brexit combined

Contractors say April’s IR35 reform is a bigger threat to their business than COVID-19 and Brexit uncertainty together

Research by IR35 specialist, Qdos, found that despite the ongoing Coronavirus pandemic, nearly two-thirds (62%) of contractors have said IR35 reform in the private sector poses the biggest threat to their business in the next 12 months.

According to the survey of more than 750 contractors, this is nearly double the number of independent workers (33%) who believe the economic implications of Coronavirus will have the worst effect on their business. IR35 changes are also a much greater concern than Brexit (5%).

On 6th April 2021, contractors will no longer be able to determine their employment status for tax (IR35 status) if they are engaged by a medium or large business. The controversial reform, which was deferred by one year due to the ongoing pandemic, will see a contractor’s client become responsible for assessing IR35 status, while the liability will be transferred from the individual to the fee-paying party in the supply chain. 

‘Onus on businesses to prepare’

Qdos CEO, Seb Maley, said the research emphasised how important it is that businesses reverse contractor bans and take a pragmatic approach to the changes. He added: “While COVID-19 poses an imminent threat to contractors, it is IR35 reform that independent professionals are most concerned about. 

 “Some contractors have been told by risk-averse clients that they will no longer engage with them as contract workers, giving them no choice but to work on the payroll or face having their contract cancelled. This is a short-sighted, unnecessary and, in some cases, a non-compliant approach that should be avoided at all costs. 

“With less than five months to go until IR35 reform, the onus is on hiring organisations and recruitment agencies to prepare for the changes. Contrary to speculation, IR35 reform is manageable, but the work must start immediately.”

The study also showed that while 45% of contractors intend to continue working this way despite IR35 reform, nearly a fifth (17%) plan on going employed in due course. 19% admitted they are considering closing their company as a direct result of the changes. Meanwhile, six per cent of contractors may retire because of the changes, with the remaining individuals exploring other options. 

Trade body calls for further delay to IR35 reform

Andy Chamberlain, director of policy at self-employment trade body IPSE, commented on the findings: “These figures chime with our research, which shows that contractors are deeply concerned both by the impact of the pandemic on their businesses and also by the coming changes to IR35 in the private sector.

“Against a background of severe financial strain for many contractors, the government is still planning to push ahead with the hugely damaging changes to IR35 in April. 

“Contractors and their clients were not ready for these changes before the pandemic and now the situation is worse. Implementing them early next year would do serious, unnecessary harm not only to contractors themselves, but also the businesses they work with and the wider economy.”

By Contractor Weekly

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8 thoughts on “IR35 reform seen as bigger threat to contractors than COVID-19 and Brexit combined”

  1. Rasta

    Of course it’s the biggest threat to Contractors as it totally trashes the ‘Veil of Incorporation’ and is probably illegal in Corporate Law.

    You are a Director and Shareholder of a company yet suddenly you are asking your Client (who has no connection with your business) to underwrite the Tax affairs of your business. In fact it goes way beyond asking, your Client is actually obliged to underwrite the Tax affairs of a Company that they hardly know.

    Which Client will ever agree to that. It’s equivalent to calling in a plumber, then being responsible for that plumber recording and paying tax appropriately; even if you have paid the plumber via a bank transfer, and they have provided you with an invoice.

    IR35 is sheer nonsense, and HMRC have never pursued another Government department, or Quango (TFL) for IR35. So all this nonsense that it has been operating in the Public Sector is fallacious.

    However, we do know that HMRC will attack the Private Sector with vengeance, often several years after the Contractor has completed the assignment.

    Oh and although that Contractor would have inevitably moved on as the requirement was relatively short-term. HMRC will still be trying to say that the Contractor was actually a “Disguised Employee”.

    IR35 = (COVID + Brexit) x 1 Million

  2. Onlooker

    There is no incentives for contractors. Contracting gives a sense of freedom e.g choosing projects, clients etc. But no longer the case within IR35, as end clients will now decide status even if contractor is paying VAT, corporation tax, accounting fees, insurances and various other establishment expenses.

  3. Steve

    I’ve come to the conclusion that the government isn’t interested in IT Consultants.. Lets face it, IT is easy, lots of stuff on Google to copy, build infrastructure.. Who needs technical, innovative people when we have google surfers from far away lands who work for pitance.
    I’ve worked in some security cleared government jobs and their systems are hanging on by a wing and a prayer. Some of these systems would cause mass civil unrest if they fail, but during this government term they are fine (so far) and so on and so on.
    The inspections are done by non-technical people and the wool is pulled over their eyes by their civil servant colleagues.
    My only advice, fellow contractors is invest your money wisely in gold, bricks and morter and abroad. You really don’t want to be having cash hanging about. Don’t bother fighting IR35 it’s a fight you will lose. Best option switch careers.. leave it to the numpties to hold together their unstable, poorly built enterprises and sit back and watch them fall.

  4. Roman

    There is nothing even similar to IR35 in most countries outside of UK. In eastern Europe you pay linear tax and you do your work as self-employed without being bullied by tax authorities all the time.
    Most IT service is now remote due to COVID. Most of the IT would be doable with the same quality, with zero tax implications in e.g. Poland, Germany or Czech. How is that good for UK ?

    • XY

      There’s something vaguely similar in Australia, but the main reason no-one needs it is because no other country is daft enough to have a tax on jobs such as our Employers NI.

      This is what all the arguments are about – imagine if it were gone, we would be arguing over:

      1. The difference between Employees NI at 11% and Class2/Class4 at about 9% – on only part of your income.

      2. The right to deduct expenses.

      In Oz, 2 is all it’s about. I personally think everyone should be able to offset against tax the cost of delivering their labour, whether they are perm or contract.

      Get rid of Employers NI and all this goes away – IR35 becomes irrelevant, offshoring is less attractive since there’s no 14% hit on employing someone based in the UK.

      And imagine the courts freed up from all those pointless “employment status” cases.

      It’s win-win-win.

  5. Let Down

    There is nothing worse than a ponzi scheme.

    HMRC ARE A PONZI SCHEME

    They collect taxes so they can pay tax colletors to collect taxes

  6. HMRCowards

    Well well well…. what a shocker !.. not !
    Designed with malice, an unjust law being shoe-horned through the biggest gravy train known to man… I give you the house of self-serving lords, a law specifically dreamed up to produce a mass exodus of the freelance and contractor market. If you’re an MP you’ll be exempt though… naturally. They have expenses that need paid by you and me, oh, and the 2nd home, and the 3rd !

    And then we have HMRC, a total cancer to society. A squad that the old corrupt Roman Empire would be proud of!

    The Gestapo finance wing are a particularly pernicious department who act above the law with impunity and are largely unregulated. Faceless cowards who hide behind those annoying little brown envelopes that drop through the letterbox. They do what they please, change laws retrospectively to suit their agenda and all at her majesty’s pleasure!

    This latest farce is all about targeting the large corps into frightening them away from hiring freelancers/contrators so ….. job done. They don’t necessarily care about those individuals retiring or leaving the UK.

    The net result is that it will bring in less revenue through tax as less people will contribute but they have never been very bright in what they do !

    #Contractorslivesmatter

  7. Bo

    I became a permanent by April 2020. I earn much less, but pay much less in taxes too. My contributions to society massively dropped.

    I am hardly motivated as permanent and doing only %20 of my effort productivity wise (max). I really don’t think IR35 regulations necessarily will help to collect more tax, but surely will be big hit for the productivity of the country.

    Most contractors change contracts in every six months or 12 months. Giving up on the legal protection of being a permanent. We all know it’s not only about money but it is also how people feel the most productive and happy..

    Being contractor means keeping yourself ready for the next interview process and keeping your technical skills at top at all times. That is encouraging the growth and keeping the country’s technical level on top. Does it really worth losing this vibe ? competitiveness ? Shall we all become clerks as it was in Soviet Russia ? ( nothing wrong with it, as it is serving the society too, but it’s not for everyone. Some serves the country with their stability, let others do keeping up with the latest technologies and taking risks.)

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