IR35 tax changes leave one in ten contractors out of work

Written by: Rachel Miller

Date: 8 April 2024

HMRC app on a mobile phone

A new survey by the Association of Independent Professionals and the Self-Employed (IPSE) has found that 10% of skilled freelancers are currently out of work due to the impact of controversial reforms to IR35 tax legislation.

An IPSE poll of more than 1,300 UK contractors in highly skilled roles has found that 21% are not currently working - and half of them say this is due to the impact of reforms to IR35 tax rules.

The findings suggest that the effects of the IR35 tax changes are far-reaching. Over half of the contractor surveyed (55%) said they had rejected an offer of work in the past 12 months due to it being deemed "inside IR35" by the client. Furthermore, 24% said they intend to seek contracts overseas this year to escape the rules.

"When tax becomes too taxing, people stop working - this is hardly surprising. The sad thing is there will be thousands of highly experienced people who would work but are choosing not to because they cannot be bothered to entertain the friction caused by IR35." Dave Chaplin, ceo, IR35 Shield.

IR35: off-payroll working rules

The survey, which is run annually by IPSE, tracks the impact of the IR35 changes - known as the "off-payroll working" rules - on contractors. Now in its second year, the survey shows that changes to the IR35 rules continue to impact hiring for skilled contract workers after being rolled out in the private sector in April 2021.

"Three years later, the off-payroll rules are still keeping thousands of highly skilled individuals out of work. It's staggering that the chancellor is happy for this to continue at a time when economic inactivity is one of his biggest concerns. Our findings show that contractors want to prioritise clients who are willing to hire them on a freelance basis, and happy to walk away from those who won't - even if this means not working at all. The blame for this impasse doesn't rest with clients - it rests with the culture of fear that is propagated by the IR35 rules." Andy Chamberlain, IPSE.

IPSE's policy director Andy Chamberlain says that employers have noted "HMRC's dogged determination to win high profile IR35 battles with TV stars" and, even though the tax body has lost a number of high-profile cases, that threat is enough for employers to conclude that "working with freelancers risks inviting too much hassle from the taxman".

He added: "This is a damning legacy for a chancellor who claims to be on the side of business. If he is serious about cutting inactivity and growing the economy, he would get round the table with those who dealing with the real-world impacts of these reforms and urgently address them."

Commenting on the IPSE survey, Dave Chaplin, ceo of IR35 compliance firm IR35 Shield said: "IR35 is anti-business and anti-growth, and when tax policies result in people choosing not to work, Parliament needs to take back control of tax policy, rather than just waiving through damaging policies like the IR35 reforms."

Written by Rachel Miller.

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