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Contractors expect more IR35 costs to come, Charity sector could be hardest hit

Charity workers have shelved out the most for IR35 advice , according to new researcher/Photo by Liza Summer from Pexels
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Contractors are concerned that IR35 rules will change again in the near future, spurring even more costs

  • Nearly three quarters (74%) of contractors are concerned IR35 rules may change again in the coming months
  • Only 43% of people agree that they understand the IR35 legislation as it is now
  • Specialist advice on IR35 has already cost contractors an average of £764 

Contractors based in the UK are concerned that there will be more uncertainty around IR35 regulations in the near future, according to new research conducted by Cool Company. The74% of those surveyed believed that the current rules will be revised.

As much as 44% of contractors within the education sector, and 40% within HR and recruitment strongly believe that there is cause for concern. Only 10% believed that there would be no changes, and 16% of people across all industries had no opinion on the matter.  

The reasons for the unease surrounding potential legislation changes aren’t just due to the potential complexities and confusion that could arise, but also the real cost implications. 86% of respondents sought specialist advice to prepare for IR35, spending an average of £764 on this advice. But the amount varied significantly by sector.

  • The industry which spent the most on IR35 advice was the charity and voluntary sector, with 81% of respondents spending an average of £1,081 
  • 100% of contractors surveyed in the information and analysis sector sought advice, typically spending £616
  • 100% of contractors in law enforcement also sought advice, spending around £885
  • 95% of hospitality and event management respondents sought advice but spent the least at £506 on average

But given that only 43% of people agree that they understand the current IR35 legislation, it would seem any legislation changes are likely to incur further costs. 

For those contractors that do feel secure in their understanding of the legislation, more than half (53%) come from the performing arts industry, and the HR and recruitment sector. While 29% of respondents from transport and logistics somewhat disagree that they understand IR35 legislation. 

Of the 14% who feel they secure less work since the introduction of IR35 – this figure includes 100% of respondents in creative arts, environment and science, law enforcement and media and internet – more than half (58%) said that they only seek to secure work with clients deemed outside of IR35 legislation. And 54% said that clients are unwilling to engage with a complex assessment system. 

More opportunities, but at what cost?

However, not all of the consequences of IR35 have been negative. There is a general consensus that the new legislation makes it easier for contractors to find work. 55% of respondents said that they feel they can secure slightly more work since the introduction of IR35, while 23% feel they can secure a lot more work. 

That may not be true for contractors that have been pushed out of the financial services sector in recent years due to blanket bans on contractors. The thing is, the City of London-based professional services sector is desperate for highly skilled and experienced talent. Professional services firms in the UK have warned of growing “white-collar” labour shortages as businesses fight it out for top talent amid the economic recovery from the coronavirus crisis, the Financial Times reported.

Some City of London firms have even started to turn away work due to a lack of staff, according to business leaders.

But it would seem that there is little talk of calling in contractors, consultants or self-employed professionals in the financial and professional services sectors, and that is very likely because of IR35 and the blanket contractor bans placed within the banking and financial services sectors, as previously reported by The Freelance Informer.

However, as The Freelance Informer previously reported, day rates and additional umbrella and national insurance costs, mean some freelancers have seen a reduction of their take-home pay as much as 40%.

One in four (23%) of all contractors working through umbrella companies say they are dissatisfied with their umbrella company, compared to 46% who are satisfied, according to IPSE research.

One key area of concern is business expenses, which most contractors now cannot claim from their umbrella company: 55 per cent were dissatisfied with this.

Another key concern is the cost of Employer’s National Insurance: 33 per cent said they were dissatisfied with this – most likely because many umbrella companies are passing this cost onto contractors through a deduction from their day rate.

Over a third of contractors (35%) have left self-employment since the changes to IR35, either moving into permanent employment, retiring, working overseas or simply not working.

Have you read these related articles?

Lords IR35 inquiry could unearth cases of tax revenue losses and recruitment woes – Freelance Informer

The PGMOL case: how it could give HMRC greater powers to take the “freedom” out of freelance – Freelance Informer

City struggles to Hire talent, compete on global stage – Freelance Informer

IR35 contributed to freelancers’ 10% drop in day rates – Freelance Informer

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