IPSE: More than a third of freelancers have quit contracting since IR35 reforms
- Reference: 1634908092
- News link: https://www.theregister.co.uk/2021/10/22/ipse_more_than_a_third/
- Source link:
This is according to the [1]Association of Independent Professionals (IPSE) which found 35 per cent fewer freelancers among those it surveyed since 6 April when the government pushed through the [2]delayed reform .
"This research shows the devastating impact the changes to IR35 have had on contractors, needlessly compounding the financial damage of the pandemic," said Andy Chamberlain, director of policy at IPSE. "Now, just when contractors are needed the most - amid mounting labour shortages across the UK and particularly in haulage - government decisions have drive out a third of the sector."
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The Register asked IPSE how many technology professionals were included in the survey but we've yet to receive a reply.
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In March, the Learning & Work Institute [6]warned the UK is heading into a "catastrophic" digital skills shortage , with the number of young adults sitting IT subjects at GCSE (the exam kids in the UK take at 16, prior to the last two years of secondary/high school) dropping 40 per cent since 2015.
An ex-contractor that spoke to us said the figures sounded "light" and that freelancers are "like me, quitting contracting every day out heading to the Middle East."
What is IR35?
IR35 is a tax reform that was unveiled in 1999 by the UK tax authorities. The latest regulation change – which came into force in April 2021 – forces medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.
Contractors found to be within the scope of the legislation – ie, inside IR35 – will have to pay more tax than they might expect.
The reforms are part of the government's crackdown on so-called disguised employment, where workers behave as employees but avoid paying regular income tax and national income contributions by billing for their services through personal service companies (PSCs), which are taxed at lower corporate rates.
The measure came into effect in the public sector in 2017. The British government hoped the reforms would recoup £440m by bringing 20,000 contractors in line.
HMRC reckons that only one in 10 contractors in the private sector who should be paying tax under the current rules are doing so correctly. It estimates the reforms will recoup £1.2bn a year by 2023.
IPSE also found that 36 per cent of those it polled are working through employment deemed inside IR35, with four in five of those saying they'd seen a drop in quarterly earnings by an average of 30 per cent. Some permanent staffers among The Reg readership might not have much sympathy for the generally highly paid contractors, judging by past comments.
Some 38 per cent of the contractors IPSE polled said their clients had yet to give them a Status Determination Statement, as required under IR35. One in five said clients has blanket-assessed all contractors as being inside IR35.
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"Not only have the changes to IR35 driven large parts of the contracting sector out of self-employment, they have made things needlessly and enormously more complex for those who remain. Contractors now find themselves with myriad different and complex ways of working – each with its own pitfalls," said Chamberlain.
"They are now divided between those still managing to work outside IR35, those working through unregulated – and sometimes unscrupulous – umbrella companies, those working inside IR35 for less pay and with no rights, and others now on client or agency payrolls," he added.
[8]Another UK government limb that can't get IR35 right: Court service pays taxman £12.5m
[9]Lords: New IR35 off-payroll tax rules 'riddled with problems, unfairnesses, unintended consequences'
[10]CEST la vie: HMRC admits controversial IR35 status checker returns undecided verdict in nearly 20% of cases
[11]UK tax collector won't probe businesses for compliance with IR35 rules unless there's reason to suspect naughtiness
[12]Want to keep working in shorts and flipflops way after this is all over? It could be time to rethink your career moves
Chamberlain described the situation as a "mess", adding: "Now, government must clear it up. We are urging government to review the situation in the contracting sector and be open to radical steps based on that – including, if necessary, repealing the changes altogether."
Around 34 per cent of those it polled now work via unregulated umbrella companies: one in four said they were dissatisfied with those businesses and 46 per cent said they are happy with them.
Campaign groups have called for [13]umbrella companies to be regulated , and UK.gov has bowed to pressure to [14]police the sector .
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IPSE's figure didn't necessarily ring true for everyone. Dave Chaplin, CEO of IR35 Shield, which develops tools that it says help contractors manage compliance, said: "Whilst freelancers have succumbed to the triple whammy from the pressures of Brexit, the pandemic and the latest incarnation of IR35, our experience suggests this is bottoming out of the market, and that it is starting to grow again.
"Many firms choose what they may have considered [to be] the easy option, by attempting to remain cost neutral and risk free by pushing a blanket ban on contractors from operating via PSCs (personal service companies). But some have since realised this has put them at a [16]disadvantage in the competing market for talent compared to firms who have implemented processes enabling them to continue to hire contractors on an 'outside IR35' basis.
"For firms with large numbers of contractors, from a practical perspective they concluded they needed to press the 'IR35 reset' button and ban PSCs in the short term whilst they got their house in order, and are now ready to hire again, having also implemented a robust process." ®
Get our [17]Tech Resources
[1] https://www.ipse.co.uk/ipse-news/news-listing/third-of-contractors-driven-out-by-ir35.html
[2] https://www.theregister.com/2020/03/17/uk_ir35_tax_reform_postponed/
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/devops&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YXLgPGKkYNuOihB8XqQ7dQAAAMc&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/devops&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YXLgPGKkYNuOihB8XqQ7dQAAAMc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/devops&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YXLgPGKkYNuOihB8XqQ7dQAAAMc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[6] https://www.worldskillsuk.org/news/new-research-highlights-uk-digital-skills-gap/
[7] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/devops&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YXLgPGKkYNuOihB8XqQ7dQAAAMc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[8] https://www.theregister.com/2021/08/23/uk_court_service_ir35/
[9] https://www.theregister.com/2020/04/27/lords_ir35_report/
[10] https://www.theregister.com/2020/12/11/cest_la_vie_hmrc_controversial/
[11] https://www.theregister.com/2021/02/17/ir35_compliance_hmrc/
[12] https://www.theregister.com/2021/06/14/covid_careers/
[13] https://www.theregister.com/2021/07/30/umbrella_company_ban_regulation/
[14] https://www.theregister.com/2021/06/10/uk_umbrella_company_regulations/
[15] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/devops&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YXLgPGKkYNuOihB8XqQ7dQAAAMc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[16] https://www.theregister.com/2021/06/02/ir35_outsiders_getting_leverage_in/
[17] https://whitepapers.theregister.com/
Re: This was always the aim
They also have the ability to use proper tax avoidance structures, so they can move the profits out of the taxman reach.
When you look at recent umbrella frauds - HMRC already lost more money than IR35 change was in theory supposed to bring (4bn loss on umbrella tax fraud vs 3bn in alleged contractor tax avoidance (never proven))
It's made my life simpler.
I don't even think about inside-IR35 contracts any more. All the tax liability is on the client now instead of me. I'll worry about the drop in pay if I ever get desperate and there are no outside-IR35 contracts around. I quit the contract I was on when the client decided my contract (and all the others there) was inside IR35. Time for all those who got moved inside to be brave and look around.
Re: It's made my life simpler.
This is not entirely correct - there is an uncharted territory when the client says they made a mistake at the end of your contract and say that it has been inside IR35 all along and then demand that your company pays money back that were supposed to be sent to HMRC.
The reforms are part of the government's crackdown on so-called disguised employment, where workers behave as employees but avoid paying regular income tax and national income contributions by billing for their services through personal service companies (PSCs), which are taxed at lower corporate rates.
But this isn't true though, is it?
They do pay income tax like every one else. There is no such thing as being taxed on "lower corporate rates".
There was a tax advantage for working this way, but it was closed in 2017 where Dividend Tax has been adjusted so that when business paid worker low salary + dividend, it very much was equal to PAYE.
People used low salary + dividend, not because of tax implications, but because it suited freelancing better. PAYE is not designed for freelancing (it creates tax code mess and eventually you pay more tax than you should, because HMRC can't calculate it properly and then you have to go through hassle of getting tax refunds).
Well my current contract started as psc but then was moved to IR35 - the main client did this for every contractor.
So I just shifted over (it did help that this contract pays 50% more than the old one) even so it is almost easier I get paid and don’t have to worry about invoices etc.
Some may say I am slightly odd but when working via the psc I took a salary that covered my day to day living costs without tapping into the rest of the funds rather than a minimum wage rate.
I am not saying it is a good thing but it does work for me.
Not odd - I know a couple of people who have done the same with the same attitude. Like you, they are on a good rate and see the lack of invoicing and admin as a benefit.
Just an observation
In another story about umbrella companies (linked in this one), the primary interest group engaged in lobbying against umbrellas seems to be ... unions.
It's the same on this side of the pond. Whether it's contracting engineers, tech workers or independant Uber drivers, the underlying motivation to shut all this down is to push workers into positions that fall under our NLRA (National Labor Relations Act) authority. So they can 'organize' and vote themselves some nice, fat union dues.
Although the problems are always stated in terms of revenue lost to various gov't programs, the truth is that it's always something. Until everyone joins a union shop.
Re: Just an observation
Interesting thing is that workers in scope of IR35 are not subject to employment law. This means Unions in this scenario are pretty much irrelevant.
Government gave big corporations probably the greatest union busting tool. All they have to do is to terminate their workers employment and get them to sign in-scope contracts.
This pretty much can send the unions packing...
As we hear about fire and rehire schemes being invoked Unions started waking up, but it's quite a bit too late :-)
This was always the aim
then the large consultancies could push their lesser skilled people at twice the price of freelancers.