- IR35 seen as ‘biggest threat’ to £300bn contracting sector in 2022
- Ten times more contractors are most concerned by IR35 than the impact of the pandemic
- A spree of cyberattacks on umbrella companies has left inside IR35 workers scrambling to get paid
- On average, contractors rate HMRC’s IR35 tool 2 out of 10 when asked their level of trust in the software
- 39% are ‘confident’ about their prospects for 2022, however 37% are either ‘concerned’ (25%) or ‘very concerned’ (12%)
- There has been an 83% rise in contractors deemed outside IR35 by their clients (from April to November 2021)
Despite a glimmer of hope returning to the UK contractor market, enforced IR35 reform in the private sector is seen by the majority of contractors as the biggest threat to their business in 2022 – according to a survey carried out by IR35 insurance firm, Qdos.
A survey of more than 1200 contractors revealed attitudes towards the contracting landscape in 2022, with 61% highlighting IR35 reform as the ‘biggest threat’ to independent work or contracting, which is said to contribute over £300bn (IPSE) annually to Britain’s economy.
This is more than 10 times the number of contractors most concerned about the impact of Covid (6%) or Brexit (6%) on their prospects this year. Incoming dividend tax increases (18%) were earmarked as the second biggest threat, but three times fewer contractors viewed this as concerning as IR35.
What changed in April 2021?
The introduction of IR35 reform on 6th April 2021 saw the responsibility for assessing IR35 status shift from the contractor to the medium or large business engaging them. As part of this reform, which mirrors changes introduced in the public sector in 2017, the liability also shifted, from the contractor to the fee-paying party in the supply chain (either the recruitment agency or client).
“IR35 reform has created a plethora of challenges for contractors, jeopardising this way of working for thousands. The fact that contractors still see IR35 as the stand-out threat in 2022 – and by some distance – tells you everything you need to know about the journey ahead, along with the progress that needs to be made this year,” said Qdos CEO, Seb Maley.
What is changing in 2022?
There are signs that since April last year, more hiring companies and the recruitment firms they use, are taking the right steps to attract the best and brightest talent. Yet, there are still some that can’t be bothered. This apathetic approach to hiring contractors could in the end cost them more altogether.
“It’s important to highlight that more businesses are taking a fair and pragmatic approach to recent reform, signalled by the 83% surge in contractors deemed outside IR35 since the changes were rolled out,” said Maley.
The IR35 specialist said that far too many businesses are insisting that contractors work on the payroll, regardless of their true IR35 status.
“Not only will this see businesses struggle to attract the flexible talent they need to recover from the pandemic, but forcing genuinely self-employed people onto the payroll will also result in significant and needless cost rises,” he said.
Contractors leaving inside IR35 contracts
Another IR35 insurer, Kingsbridge, found in its research that over 21% of contractors that received an inside IR35 status determination statement (SDS) said that they left to find an outside IR35 role.
The report said that in the current candidate-driven market, contractors will be unlikely to accept inside IR35 assignments. This is further backed up by 60% of contractors telling the firm that they plan to look for an outside IR35 role over the next few months.
As many as 50% of contractors surveyed believed that they were subject to a blanket ban, according to Kingsbride’s Andy Robinson, who warned that such bans are a short-sighted approach, which could result in businesses missing out on some of the best talent.
For those that did enter inside IR35 roles since April 2021, over 40% of them have had to increase their rate on average 10%. Such rate rises were to take into account the additional fees they would have to pay in national insurance and umbrella fees. But that hasn’t hit the mark for many contractors who like us all will have bigger bills to pay this year thanks to the cost of living crisis and tax hikes.
However, according to some contractors that have expressed their stories on social media their take-home pay has gone down in some cases 40%, which means their financial situation has changed considerably since taking on an inside IR35 role. They will also have to take into account new tax hikes targeted to small business owners and freelancers including dividend and national insurance come April 2022.
There have been cases where contractors forced to use an umbrella company payroll scheme have since found that they are very likely absorbing both employee and employer national insurance costs, which is according to HMRC illegal.
Until umbrella companies are regulated, punished and brought to justice for such sly practices, contractors will pay the price. This is concerning considering that Kingsbridge has reported that despite pushbacks from contractors, many businesses continue to enforce PSC bans.
The brain drain effect on the UK talent pool
Companies in certain sectors, such as insurance, banking and IT, have felt pressured and nervous around the private sector IR35 rules and took what they considered the easy route by not creating contracts with outside IR35 parameters, requesting instead to their recruitment firms that all contractors become umbrella company employees. To make the hiring process less onerous for the recruiters, many have suggested or preferred umbrella companies for their candidates to use. At present, there is no law not allowing recruitment firms to carry out such practices or to be fined for any conflict of interest or paybacks they receive from “preferred umbrella suppliers.”
Many contractors in the IT community have expressed on social media and to The Freelance Informer that their former roles were outsourced outside the UK as a result of the IR35 and Off-Payroll rules. That is a serious blow to the UK talent pool and to the Treasury’s purse.
Umbrella company cyberattacks
To make matters worse, a spree of what appears to be malicious rather than financially motivated ransomware hits on umbrella companies including Brookson, Parasol and Giant, has meant late payments for contractors, according to recent reports and contractor outcry on social media channels. Some contractors have since left their umbrella company due to the attacks.
While the state of play at the moment is that the hackers did not steal contractor personal information and bank account details, there is no guarantee of that or if that data will be held ransom in the future.
One of the top questions contractors will have to ask not only clients but umbrella companies in 2022 is: do you have cybersecurity and payroll insurance? The last thing anyone wants is a repeat of a Kronos-style event.