As of April 6th, 2021, the reformed IR35 legislation comes into play for the self-employed and contractors across the UK.
You can read all about the IR35 and the changes occurring this month in our previous blog, but we want to take a look at how these changes will directly affect contractors, and the problems that could be caused as a result.
Providing companies with highly skilled professionals on-demand has always been the role of a contractor and the new changes, which include a poorly thought-out off-payroll framework, could bring a huge negative change to contracting as we know it.
The legislation comes into force in the same year that bringing skilled individuals from the EU27 is now near impossible. Key sectors, like financial services for example, are incredibly reliant on contractor talent and now, the UK is facing a huge gap in this talent. Thanks to Brexit and the uncertainty around it, investment is low at the moment anyway and this, combined with the possibility of client’s losing money due to administrative pressures, driving internal paperwork and recruiter costs, could mean that the new rules are another closed door for contractors.
Not only will the chance of less work being available stunt some people’s pay cheques, but with more than two thirds of freelancers unaware of the changes, many could soon be hit with a huge tax bill. The changes allow for the client to now be responsible for deciding whether a contractor or freelancer they use is taxed at source or paid gross. Therefore, if the client does deem them inside of IR35 on that particular contract, they will be taxed at source for income tax and National Insurance and ultimately, receive less money.
Contractors who are structured as a small company, and who also legally use tax planning abilities like taking money out using dividends instead of salary, could have this taken away from them as a result of the changes. Not only this, but the HMRC can go back at least six years and evaluate all contracts within this time to see if the legislation applies, which could result in contractors owing hundreds of thousands of pounds.
In December 2020, and as a result of the pandemic, there were half a million fewer self-employed people working in the UK than there was in August. Now, as it stands, there are just 4.35 million self-employed workers. With less work available, and the new IR35 changes cracking down on contractors, it comes as no surprise that many are turning to permanent jobs. Clients may now find it challenging to recruit contractors and will have to pay the additional fees associated with hiring somebody new. They will now either need to increase contractor fees in order to accommodate the new legislation or take the contractor on as a short-term employee which will then affect their tax and income, as mentioned above.
We understand that these IR35 changes can cause some worry to both clients and contracts, and that’s why we’re here to help. Our Contract Team are geared up to responding to a marketplace that is challenging and ever-changing. Get in touch with us today at firstname.lastname@example.org or call 0161 967 9670.