Freelance tax grab sparks talent drain as one in five seek work abroad

New research has revealed that more than one in five (22%) of the UK’s freelance population plans to seek contracts with firms overseas, in response to a reform of self-employed tax rules known as ‘IR35’.

The research, released today by IPSE (the Association of Independent Professionals and the Self-Employed), surveyed 1,500 UK freelancers about their business plans in the wake of the controversial reforms.

In addition to seeking overseas contracts, the research also found that as many as one in ten (10%) cited IR35 as the reason they are not currently working.

Meanwhile, more than half (53%) of freelancers have walked away from contracts affected by IR35 in the past 12 months, and even more (62%) plan to avoid these contracts – known as working ‘inside IR35’ – in future.

This follows findings from IPSE research in April which found that, of those affected by IR35, just under four in five (79%) considered government tax policy to be the most detrimental factor affecting business performance.

IR35 is tax legislation that affects self-employed people who work via an intermediary – typically a limited company. The rules seek to prevent a tax advantage being gained by individuals working via a limited company when their working arrangement resembles one of employment.

In April 2021, reforms to IR35 made medium and large sized businesses liable for determining whether IR35 applies to a freelance engagement.

Andy Chamberlain, Director of Policy at IPSE, said: “The prospect of more freelancers taking their services abroad is bound to raise alarm bells for firms struggling with skills shortages and competition with rivals overseas. But most alarming of all is government’s decision to bury its head in the sand, rather than changing course and acknowledging the damage its own rules are inflicting on British businesses.

“IPSE warned government for years that its plans to reform IR35 would make being in business too difficult, and that many genuine freelancers would turn their backs on contracting in the UK as a result. Today’s findings, whilst concerning, are nonetheless unsurprising.

“Freelancers and contractors are refusing to be corralled onto company payrolls. Instead, they are working with firms that respect their status as independent businesses, both at home and abroad. Many others, however, felt that it made more sense to retire early, or stop working altogether, rather than carry on in an increasingly unfavourable environment for self-employment, overseen by this government. This is a damning legacy for a government which has prioritised labour market participation.

“If the Chancellor is serious about fostering a thriving economy, government must rethink its approach to IR35 – it is a huge hindrance to hiring and a drag on the prospects of hundreds of thousands of our smallest businesses.”