1 in 4 businesses may phase out contractors

16 January 2020

New research reveals that as many as four in ten businesses (41pc) will review their strategy around contractors come April 2020 when IR35 is introduced.

The survey from bedigitaluk.com is part of ongoing study into the way that British businesses are preparing for the IR35 legislation. IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name. If a contractor is operating through an intermediary, such as a limited company, and but for that intermediary they would be an employee of their client, IR35 kicks in. These new off-payroll rules are being brought in to combat tax avoidance caused by workers supplying services to clients through an ‘intermediary’.

Out of the 1,500 British business owners surveyed, just under two thirds (65pc) were aware of the IR35 legislation and have a plan set to deal with the law changes. After being informed on what IR35 is, 41pc said they will look to review their strategy for procuring contractors into their businesses, and just over one in ten (11pc) said that they would take more drastic action by decreasing contractor numbers, having a potentially damaging effect on critical projects.

Which sectors are struggling the most with IR35?

Those operating within the construction sector were most confused by the incoming legislation, with the top 5 sectors expressing concerns listed below:

Only 32pc of businesses felt IR35 is a positive step in ensuring fair pay and tax implementation on UK contractors.

Richard Tyler, a spokesperson for www.bedigitaluk.com, commented:

“The results of this research clearly highlight the need for businesses to gain a much broader understanding of what the upcoming IR35 means, and how it will affect their company finances. Whilst the new off-payroll rules present a level of risk to businesses in the short-term, acquiring services using outcome-based Statement of Works’s is a sensible way of reducing risk. However, if businesses do not adequately prepare for the changes, it may quickly create unexpected costs and issues”.

IR35 review

The news of a six-week government review into IR35 has not impressed the experts.

Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA), said: “This seems to be another meaningless review from a government who seems intent on bulldozing ahead with its plans anyway.

“We have also learned today that the review will focus on the implementation of the reforms rather than the reforms themselves, which is not what was suggested and is not what is needed. I fear that [the] pledge is simply the government paying lip-service to empty election promises and nothing short of an insult.”

If you’re concerned about IR35 legislation, and what it could mean for businesses employing contractors, please get in touch.