Just over six months on from the April 2021 rollout of IR35 legislation to the private sector and the UK economy is starting to see some of the negative effects of it.
A shortage of contract workers to drive logistics lorries has impacted our shop’s shelves, while there is still a huge gap in contract workers in the hospitality and leisure industries.
Blanket decisions made across some of the biggest employers of contractors e.g. banking and finance, offshore energy, construction, has seen a shortage of workers in those sectors and a slowdown in output and project completion.
The insurance industry has seen a dramatic drop the number of contractors renewing their insurance policies in favour of closing their businesses and returning to full time employment, with many feeling that they have been forced into making the decision to close rather than wanting to.
Contractors are said to contribute some £300bn to the UK economy, yet since April 2021 and the roll-out of private sector IR35 legislation they have been given a rough ride.
According to a recent survey by IPSE, the Association for Independent Professionals and the Self Employed:
- 35% of contractors have moved into permanent employment, retired, started working overseas, or have not worked at all.
- 34% of those still working are now working through Umbrella companies.
- 36% have been engaged in contracts inside IR35.
- 80% of contractors working on contracts inside IR35 have faced a drop of up to 30% in income in their quarterly earnings.
- 25% of respondents to the survey cited a drop of more than 40% in income.
According to the survey, many organisations still aren’t adhering to compliant IR35 processes.
- One fifth of companies are still making blanket IR35 assessments.
- 38% of companies are not passing the contractor the Status Determination Statement (SDS).
- 11% of businesses are said to have stopped engaging with contractors altogether.
- 23% of contractor who are now working through an umbrella company are said to be unhappy with the umbrella they are with, many citing not being able to claim expenses as a key reason for this negative sentiment.
- One third also cited the National Insurance Contributions (NICs) which they believed the Umbrella was passing onto them as a reason they were unhappy with their umbrella company.
So what has been learned from the first six months of IR35?
It is apparent that there are still a large number of end hirers who are either confused, or still burying their heads in the sand, about the IR35 legislation and their role in it. Many of which have chosen the easy route by stopping working with limited company contractors altogether to avoid financial penalties.
From the contractor’s viewpoint, it appears that many have either closed the limited companies in favour of full time work, or they have joined umbrella’s, just as many public sector contractors did in 2017. However, with there being many tax avoidance schemes out there purporting to be umbrella companies, some contractors are getting their fingers burnt as a result of signing-up with these non-compliant umbrellas.
To ensure you are joining a compliant umbrella, you can simply look for any association with professional bodies such as the Freelancer & Contractor Services Association (FCSA), who only award accreditation to compliant umbrella companies.