IR35 ‘damages business growth’

In a recent survey carried out by the Association of Independent Professionals and the Self-Employed (IPSE), 42% of businesses say IR35 reforms have negatively affected their business.

Of the 500+ businesses surveyed, 28% had reduce the number of contracts given to freelancers since the changes took place in April 2021. The report goes on to say that since the changes, some 35% of freelancers have closed their business.

IR35 legislation was designed to prevent freelancers and the firms using them from avoiding tax. The changes implemented in April 2021 moved the responsibility for deciding whether a freelancer was employed or not from the worker to the client. The reforms were widely criticised as being ‘overly complex’. One of the primary issues was that many businesses, one in five according to the survey, didn’t review each assessment of status individually, as recommended. Instead they assessed all contractors as being within IR35.

Given that the same research has identified that IR35 has been a significant administrative burden for 47% of businesses, a blanket approach rather than a ‘case by case’ is unsurprising!

Over a quarter of those surveyed reported that they use the government’s CEST (Check Employment Status for Tax) tool whilst 22% stated that they make IR35 assessments themselves without using any tools or software. Of those that use CEST, the research found that it had led to a 35 per cent decrease in contractor engagement.  HMRC’s own statistics have shown that they are unable to make a decision in 19% of cases.

Derek Cribb, CEO of IPSE, said: ‘Businesses have long relied on freelancers to provide additional expertise and support. The changes to IR35 in the private sector in April 2021 have made it harder for them to hire contractors and has therefore made it even more difficult for them to grow during these turbulent economic times.’

It’s impossible to separate the impact of the pandemic from the impact of the changes to the IR35 regulations, so there may well have been a slightly different outcome if the reforms had not come at such a difficult time. As it is, the critics of the reforms are unlikely to be reassured.

If you’re unsure of your status, we’d recommend starting with the CEST tool linked above. If you’re still unsure, get in touch and we’ll help if we can.