Empowering the Freelance Economy

IR35 biggest threat to survival of UK freelance economy, says report

There is rising concern among limited company directors that the deliberate decision of the UK government to exclude limited company directors from SEISS may be set in stone as each furlough or self-employed package arises, yet again limited company directors are excluded.

“The decision to introduce IR35 reform and also leave freelancers and contractors stranded during the pandemic speaks volumes of the Government’s poor treatment of independent workers,” Seb Maley, the CEO of IR35 specialist, Qdos tells The Freelance Informer.

Is there a ‘hidden’ link between IR35 policy and the intentional exclusion of company directors in SEISS?

“It’s no accident that individuals working via their own limited companies are being hit by needless tax changes and ignored in the COVID-19 support either,” said Maley. “The Government seems hell-bent on making this way of working more difficult when in actual fact it would be in the economy’s best interests to help contractors – the vast majority of whom belong outside IR35 in our experience – to continue working this way.”

IR35: the biggest threat to UK freelance economy?

In a recent Qdos survey, contractors viewed incoming IR35 reform as the biggest threat to their business in the coming 12 months – bigger than COVID-19 and Brexit combined.

Despite the ongoing pandemic, 62% of more than 750 contractors said IR35 reform in the private sector is their biggest concern in the next 12 months. This nearly doubles the 33% who believe the economic impact of COVID-19 on their business will have a worse impact, and is well ahead of the 5% who fear Brexit most. 

On 6th April 2021, unless contractors are engaged by a small private sector business, they will no longer have the power to determine their own IR35 status (employment status for tax).

The responsibility will be passed to medium and large businesses, with the ‘fee-payer’ (recruiter or hiring organisation) to carry the liability. This is similar to reform in the public sector, which was introduced in 2017, stated the Qdos report.

Regardless, nearly half (45%) of contractors intend to continue working this way post-IR35 reform. 17% may become employees in response to the changes, while 19% are considering closing their company due to IR35 changes. The remaining contractors are weighing up retirement or ‘other’ options, such as expanding their business.

Maley, said based on the findings, it is important that businesses reverse contractor bans and take a pragmatic approach to the changes.

Seb Maley, CEO of Qdos

“While COVID-19 poses an imminent threat to contractors, most of whom all but miss out on Government support packages, it is IR35 reform that independent professionals are most concerned about,” he said.

“Some contractors have been told by risk-averse clients that they will no longer engage with them as contract workers, giving them no choice but to work on the payroll or face having their contract cancelled. This is a short-sighted, unnecessary and, in some cases, a non-compliant approach that should be avoided at all costs. 

seb maley, ceo of qdos

“With only five months to go until IR35 reform, the onus is on hiring organisations and recruitment agencies to prepare for the changes. Contrary to speculation, IR35 reform is manageable, but the work must start immediately.”

The UK’s furlough scheme, which will be extended in full (80% of salary) until the end of March, with the Self-employment Income Support Scheme (SEISS) grant increased to 80% of profits for November to January, up to a maximum of £7,500, is a welcome relief – for those that are eligible.

However, one year of furlough, with 3 million self-employed workers not receiving any support calls to question if they will be included in any form of support in 2021.

“While the Government has extended some measures, it is still failing to fix major gaps in the support,” Jonathan Geldart, Director General of the Institute of Directors, said in response to the Chancellor’s statement in the House of Commons, announcing furlough scheme extension.

“Many self-employed, including small company directors, continue to be left out in the cold. Grant funding through local authorities could help address this issue, otherwise, those missing out will face a harsh Winter,” said Geldart.

Money Saving Expert Founder, Martin Lewis, offers some tips in this video on how limited company directors may be able to apply for some support, but it is far from simple. But if things are dire as they are for so many of the 3 million ExcludedUK, then this video may be of great help. Thank you, Martin!

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