Inside IR35 contractors say goodbye to old salaries and weekends
- IR35 reforms one year on: 60% of contractors report drop in income.
- Some end-clients are still exhibiting “inside IR35 or leave” blanket ban contractor policies.
- 72% of contractors said that hiring businesses are not taking reasonable care when it comes to determining the status of an engagement.
- Umbrella company workers still missing out on PAYE benefits like sick pay.
With the first year anniversary of the Private Sector IR35 reforms approaching, research has revealed 60% of contractors reported their income had been reduced due to the change in legislation.
The overwhelming majority (74%) felt the system benefited neither the hiring business or the contractor, with just 4% saying they would keep the regulations as they currently stand, according to research conducted by Caunce O’Hara, an insurance broker for freelancers and small businesses.
Less pay for longer hours?
While there are news reports of companies unable to fill positions, contractors are still being blanket banned. A further 60% of respondents reported they had seen a decrease in work opportunities as a direct result of the rule changes. Despite this decrease in opportunities, 79% of those surveyed said they were either working the same amount of hours or more as years previously.
Dominique, one of the survey respondents who works in business consultancy, said she used to have 52 weekends a year and now she is lucky to get just 10.
Previously I ran a company that had a good turnover, now I have to work for a contract inside IR35, then use my spare time to keep the company trading. So I work at weekends and holidays as well to make sure my family is provided for and the company remains trading.
Despite this, Dominique is hopeful that the worst is behind them in terms of lower profits now that IR35 is a little more stable, however, she says this is dependent on “the government being willing to provide the necessary support.”
Many of the UK’s self-employed are losing hope that the Conservative Party will support them. Dominique said that many past colleagues had already given up their companies and are now working as full-time staff for private companies, as they have families to support and simply cannot afford to “argue” with the system.
As part of the reforms, medium-to-large private sector companies became responsible for determining whether the limited company contractors they engaged with should be taxed in the same way as salaried employees (inside IR35) or off-payroll workers (outside IR35).
In principle falling within IR35 would mean that contractors would receive the benefits of PAYE workers. Yet, of those respondents that had moved into umbrella companies or onto end-client payroll, 46% said they didn’t enjoy any perks by working this way. Those who did valued holiday pay and pension plans the most.
Umbrella workers still getting a raw deal
For contractors like Yvette, who works in HR & Learning, umbrella company benefits are one of the major issues with the current system. She told Caunce O’Hara that currently, she pays tax at the same rate as an employee but with no benefits such as sick pay, holiday or pension, but with all the extra costs of running a business and the time commitment.
Yvette went on to say that the biggest change the government could implement to make the system fairer is to “make it clearer for a company to identify the difference between inside and outside IR35”.
Of all the contractors that Caunce O’Hara spoke to, nearly two thirds (64%) were currently engaged by either a public sector body or a medium to large organisation, meaning the decision of where they fell within the reformed legislation was taken out of their hands.
And according to Liam, who works in IT, some companies are not taking sufficient care when determining status. The contractor told Caunce O’Hara how the company he was working for has a blanket ‘inside IR35 or leave’ policy. He went on to say that many clients don’t want to “take the risk” of doing proper assessments.
Is anyone really benefitting from IR35?
Rob Rees from Caunce O’Hara said: “Six months ago, it was reported that six in 10 medium-sized firms were operating without any IR35 off-payroll process in place, and our research suggests contractors are being impacted by this. Almost three quarters (72%) of contractors we spoke to felt that hiring businesses are not taking reasonable care when it comes to determining the status of an engagement.
“This, combined with the fact the majority of contractors are earning less and seeing fewer work opportunities, suggests few contractors have benefitted from the wide-reaching IR35 reforms one year ago.”
Recent data from the ONS on the current Labour force shows that the number of payrolled employees hit a record high of 29.5 million in January 2022 – a year-on-year increase of 4.8% which equates to about 1.35 million people becoming payrolled employees since January 2021.
Any contractors who, in the wake of the reforms, opted to close their limited company to take on a permanent position or join an umbrella company would be included in this figure.
That same ONS data also reveals that 793,000 people stopped identifying as self-employed between the first quarter of 2020 and final quarter of 2021.
Read the full results of the survey on the Caunce O’Hara website.