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A third of self-employed expect IR35 reform to cost them more than £20,000

3-minute read

Sam Bromley

22 March 2021

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A new survey from Simply Business reveals that a third of self-employed people affected by IR35 expect the upcoming rule change to cost them more than £20,000 – for example in less take-home pay and administration costs.

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We surveyed 250 self-employed people in different professions, including IT, business consultancy, and project management.

Two thirds expect the upcoming changes to significantly impact their business, while more than half need extra time to prepare.

The cost of IR35 reform

IR35 reform was originally slated for April 2020, but the government delayed the change for a year because of coronavirus.

The reform shifts the responsibility for working out a contractor’s employment status for tax from the contractor to their hirer. Read more about the upcoming IR35 changes.

HMRC hopes that this will increase compliance with the rules. In practice, many contractors believe that the change will make the self-employed less flexible – and could result in less tax for the government, harming the UK economy.

The majority of contractors we surveyed expect a significant hit to their finances as a result of the change:

  • nearly a third of contractors expect it’ll cost them more than £20,000
  • 31 per cent of contractors expect it’ll cost between £5,000 and £20,000
  • 18 per cent of contractors said they weren’t sure how much it’ll cost, with only eight per cent saying they don’t expect costs
How much do you expect the IR35 reform to cost you?% agreed
More than £20,00032.4%
No cost8%
Not sure/other20.8%

Indeed, 68 per cent agreed that the financial impact on their business is their biggest concern about the changes.

More than half of contractors need more time to prepare for IR35 changes

With not long to go until the IR35 changes (and no sign of a further delay), many contractors are struggling to get ready:

  • more than 50 per cent agreed they’re either unprepared or need more time
  • on the other hand, 32 per cent said they were prepared before the 12 month delay, and nearly 11 per cent are now prepared because of the delay
  • one respondent suggested that HMRC actually needs more time to prepare, as it has lost high-profile court cases in the past

Many self-employed people still think HMRC should reconsider the changes

Over 90 per cent of self-employed people we surveyed agreed the changes should be delayed again – and half agreed the changes should be scrapped altogether.

Would you welcome another delay?% agreed
The changes should be scrapped altogether50.4%
The changes need rethinking38.4%
The sector needs more time to prepare5.2%
No – another delay is prolonging the inevitable6%

With contractors eyeing permanent roles, many expect damage to the UK economy

More than half of the self-employed people we surveyed said they’re at least considering permanent employment.

Out of those, 15 per cent even told us that they’ll look for – and accept – a permanent role within the next 12 months.

Lots of contractors said that this is how the UK economy will ultimately be harmed. More than half of contractors expect a big impact on the UK economy, with two fifths agreeing that with more contractors going permanent, the UK will have a less flexible workforce.

And just over a quarter agreed that with fewer contractors working, they’ll be able to contribute less to the UK economy.

One respondent said:

I don't think HMRC will see much increase in revenue, particularly on the back of Covid-19. Contractors will have to accept lower rates from clients (who are looking to balance their own books). Furthermore, HMRC will see gains from PAYE and National Insurance being offset by losses from corporation tax and dividend tax.

A more sustainable solution would be to require all limited companies with less than 10 full-time employees to have higher payroll than dividends. And all self-employed to be allowed a fixed percentage of tax deductible costs.

How can the self-employed prepare for the changes?

One respondent told us they do most of their work in the public sector. And with this reform having been in place in the public sector for a few years now, those grappling with the upcoming change could look there to see how to manage the upcoming changes.

The respondent said that past clients have put them on the payroll without sufficient knowledge of the way they work. But discussing the upcoming change, they told us: "I hope that because I’ve been talking to my clients on an ongoing basis about IR35 and the changes coming up that they’ll be prepared to carry on talking with me post-April. Good communication with clients is key to my business for all manner of reasons – it’ll be much more so post-April".

While almost 30 per cent of contractors said they’ve been preparing for the change by reviewing their contracts, 22 per cent said they haven’t been preparing.

And with contractors telling us that they’re still waiting for Status Determination Statements from their clients, or that clients are making blanket assessments, it’s best to be having those active and open discussions as soon as possible.

Our IR35 support hub has more information about the off-payroll working rules.

How are you preparing for the upcoming changes? Let us know in the comments below.

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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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