Ryan FowlerA significant number of contractors in the UK are feeling the brunt of the IR35 tax reforms, with over one in ten (10%) currently out of employment attributing their situation to these changes, according to the latest IR35 Spotlight report by the Association of Independent Professionals and the Self Employed (IPSE) for 2024.
The report highlights that a notable 55% of contractors have turned down work in the past year because the roles were classified as ‘inside IR35’, reflecting ongoing concerns about the legislation’s impact on flexible working. Furthermore, nearly a quarter (24%) of respondents are considering looking for contracts outside the UK in the next twelve months, aiming to bypass the challenging IR35 rules.
The 2024 edition of the report underlines the persistent issues facing contractors and their clients due to the IR35 reforms, which were introduced to the public sector in 2017 and extended to the private sector in 2021. These changes have significantly altered how contractors operate and how clients engage with freelance expertise, with many opting for intermediary services or implementing blanket assessments on all their contractors.
The study, which surveyed over 1,300 participants, also revealed a slight increase in contractors currently not working, from 18% in 2023 to 21% this year. The age breakdown indicates that older contractors are more affected, with 22% of those aged 50 and above out of work compared to 14% among younger respondents.
Despite these challenges, contractors remain engaged in the market, with the average number of engagements over the last 12 months holding steady at two. The private sector continues to be the primary source of work, although there has been a slight increase in engagements deemed inside IR35.
A concerning find from the report is the apparent negligence by some clients in issuing a Status Determination Statement (SDS), with 63% of contractors reporting not receiving one. This oversight highlights a gap in compliance with the IR35 rules, potentially leaving contractors in a state of uncertainty regarding their tax status.
The report also touches on the growing trend of contractors operating through umbrella companies due to the IR35 reforms, with 68% of those who do reporting dissatisfaction with this arrangement. Additionally, 39% of respondents have had to close their limited companies as a direct consequence of the IR35 changes.
Looking forward, the report suggests a cautious outlook among contractors regarding the IR35 landscape, with only 12% feeling more confident about securing outside IR35 contracts in the coming year. This sentiment reflects broader concerns within the contracting community about the ongoing impact of the IR35 reforms on their ability to work flexibly and efficiently.
In conclusion, the IPSE’s 2024 IR35 Spotlight report calls for a comprehensive review of the IR35 reforms and their impact on the UK’s contracting sector. With the government aiming to address the growing economically inactive population, understanding the barriers posed by IR35 to labour market participation is crucial. The report advocates for measures to revive the contracting sector, including addressing issues around the issuance of SDSs and the actions of clients, agencies, and umbrella companies.
