New research from ContractorUK has revealed that the introduction of IR35 in the private sector is still a concern for contractors and UK businesses, despite the delay of its launch until April 2020.
An increased burden
Philip Hammond announced in the Budget Statement of October last year that the rollout of IR35 into the private sector would be delayed until 2020. This was welcome news to UK businesses and contractors alike. However, research by ContractorUK reveals that the delayed rollout has done little to allay the fears of many UK contractors.
IR35 legislation was introduced to prevent ‘disguised employment’ by taxing contractors who fail to meet HMRC’s definition of self-employment at a rate similar to employees. The reasoning is that the tax advantages enjoyed by contractors are meant to balance the increased risks and responsibilities they face. Therefore those advantages shouldn’t be enjoyed by contractors who are effectively working as employees. Contractors who fall within IR35 will be liable for increased taxation and National Insurance liability.
65% of UK contractors who responded to ContractorUK’s survey said they were “very concerned” about IR35 being introduced to the private sector, a move that will affect all UK contractors not considered by HMRC to qualify for self-employed status.
Anthony Sherick, managing director of ContractorUK, said:
“Rate increases could partly compensate for the new IR35 landscape. However, the increased burden of compliance and administration added to the sector is likely to be a big cost to companies and hiring contractors.”
Fears that IR35 will damage contracting and UK business
Contractors’ fears are mainly surrounding increased costs and loss of potential work resulting from the effect of the new legislation.
With regards to their finances, 65% said they fear their income will decrease following the introduction of IR35 in the private sector and 62% believe that blanket IR35 inclusions when contracting job specifications after April 2020 will result in significantly higher tax liabilities.
As for the effect on businesses and their future work prospects, 80% of the contractors surveyed believe businesses will not understand how to implement the new rules effectively in the private sector and 52% fear the legislation will result in companies being unable to deliver on key projects.
It’s also making some question their future as contractors, with one in five believing they will be forced to leave contracting for a permanent role post-April 2020, and 46% saying that they are waiting to see what the “initial consequences” will be for the wider contracting market before making a final decision whether to continue as a contractor.
“Businesses must educate themselves on IR35 legislation and ensure they do not implement a blanket IR35 inclusion without taking into consideration the impact this will have on both their business and contractors,” said Sherick. “To do so would be to the detriment of individuals, flexible working, and productivity in the UK economy.”