The impact of IR35 changes on the self-employed in 2021

The proposed changes to the off-payroll tax legislation (often referred to as IR35) are due to come into the private sector in April 2021. This would see the responsibility for determining IR35 status shifted from contractors to end-clients and extend the damaging effects of these rules, which were implemented in the public sector in April 2017. The announcement of the intended extension to the private sector, previously delayed for twelve months due to the pandemic, has led many end-clients to make blanket IR35 decisions due to the complexity of the process.

 

Our research with over 1,500 freelancers and contractors about the changes to IR35 shows the legislation will have a significantly detrimental impact on the sector. The results revealed that 24 per cent of clients have already said to their contractors that they will determine all engagements with them to be inside IR35 – a blanket assessment – while 21 per cent report their client will only work with them if they are engaged via an umbrella company.

As a result of the changes, half (50%) of freelancers have said they plan to stop contracting in the UK – although of these, 57 per cent said they would continue if they could find outside-IR35 contracts. A total of one in four (24%) said they plan to seek contracts abroad, one in eight (12%) plan to stop working altogether, 17 per cent are planning on seeking an employed role and 11 per cent are planning on retiring within the next year.

 

IPSE continues to fight the extension of IR35 to the private sector and has laid out the following three recommendations in this report: 

  1. The government should delay the April roll-out of IR35 in the private sector for at least a further twelve months in order to protect the flexible labour market, thousands of compliant UK businesses and the wider economy
  2. Government should consider alternative arrangements such as IPSE’s Freelancer Limited Company concept and/or the idea of end-clients paying an Engager’s National Insurance
  3. Government should implement the recommendations from the Taylor Review of Modern working Practices to provide clarity on employment and tax status
Read the full report here

 

Meet the author

Chloe Jepps

Head of Research

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