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IR35 reform: 1 in 3 contractors expect to miss out on over £20,000 in take-home pay

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Simply Business

Simply Business

29 April 2021

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IR35 reform: 1 in 3 contractors expect to miss out on over £20,000 in take-home pay

  • New research reveals one in three UK contractors expect to miss out on over £20,000 in take-home pay due to recent IR35 reform
  • Contractors are most fearful about the newly introduced tax reforms having a substantial financial impact on them
  • Over half (52%) of UK contractors felt underprepared for the reform, and still need more time to adjust

With the new IR35 reform coming into force across the UK earlier this month, contractors are set to miss out on substantial amounts in take-home pay, new research reveals.

A study by small business insurer Simply Business revealed that a third (32%) of contractors expect to miss out on over £20,000 in take-home pay now the IR35 reform has come into effect, and one in five (20%) expect to miss out on between £10,000 and £20,000. The private sector reform was due to take place in April last year, but was delayed due to the Covid-19 pandemic.

Contractors form a crucial part of the five million self-employed people in the UK. Kevin Neal and Bill Cunnew are just two out of thousands of contractors in the UK considering the long term effect and shattering financial loss surrounding the changes to IR35.

Kevin Neal - IT contractor adds: “The IR35 reform means I have lost an eighth of my pay to tax, fees and pension, which will have a substantial impact on my income. I feel persecuted for doing nothing more than trying to earn a living. I pay my taxes, I always have. The Inland Revenue should focus on those who do not instead of making sweeping changes that affect everyone.”

Bill Cunnew - IT contractor comments: “I contracted for 26 years through my own limited company, I earned good rates but due to IR35 the banking and insurance sector has just stopped taking LTD company contractors. After one year out of work I was forced to take a permanent job on a lot less money, as a result I am now paying about 25% of the tax I paid as a contractor.”

Financially speaking, the difference between working outside or inside IR35 can be huge, with contractors operating inside the constraints of the legislation or via PAYE often taking home up to 25 per cent less after tax.

The change affects thousands of businesses who engage contract workers, and means that the onus is now on private businesses of a certain size to decide whether any individuals who provide their services via an intermediary are ‘deemed employees’ for tax purposes.

This means contractors and their clients need to consider making the required changes for IR35 if they haven’t already. With the reforms coming in earlier this month, 52% said they were unprepared and needed more time to make the necessary adjustments. Of those, 29% have reviewed their existing contracts to ensure the correct clauses are in place to deem them as operating outside of IR35, and 10% are still having open conversations about the assessment process.

Alan Thomas, UK CEO at Simply Business, comments: “The new IR35 rules will affect so many contractors across the UK, and could see many miss out on a substantial part of their income. Contractors are a vital part of the economy, and with one in three now expecting to miss out on over £20,000, the impact of the new rules will be felt up and down the country.”

“We know the last 12 months have been especially difficult for contractors, and that despite IR35’s delay, many still find the legislation difficult to understand. So it’s unsurprising that nearly a fifth of those surveyed (18%) are concerned about not making the right changes and fear being taken to court or getting fined later down the line.

“Clearly, the IR35 reform has complexity, and while it’s vital that contractors prepare as much as they can, we would call for more support and simplicity in the process. Now more than ever it’s vital that we support our self-employed communities – this is why we’ve launched a free IR35 hub to offer guidance to contractors affected by the reform.”

-Ends-

Methodology:
Survey of 250 contractors across industries conducted in March 2021

  • Industries surveyed include:
  • IT
  • Business and management consultants
  • Engineers
  • Project Managers
  • Finance / legal / insurance
  • Marketing / advertising / design
  • Architects / surveyors

For further information, please contact:

Frank PR
[email protected]

About Simply Business

Simply Business is one of the UK’s biggest business insurance providers, specialising in public liability insurance for SMEs and insuring over 800,000 small businesses and landlords across Britain.

Launched in 2005, Simply Business provides an online brokerage service, delivering policies tailored to individual business requirements. Using the power of tech and data to create the best possible customer experiences, Simply Business employs over 800 people across offices in London, Northampton, and Boston in the US.

Owing to its internal underwriting capability, Simply Business can cover over 1,000 trade types – ranging from plumbers to accountants to dog walkers. An accredited B Corp for their positive social impact, Simply Business has also been voted the Sunday Times Best Company To Work For twice in a row.

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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