• Research
• 13 Jun 2023
• Joshua Toovey

• One in 10 contractors (10%) are currently out of work as a direct result of IR35 reforms
• More than half of contractors (53%) have walked away from opportunities that were inside IR35 in the past 12 months
• Three in five contractors (62%) vow to not work inside IR35
• More than a fifth of contractors (22%) plan to shun UK companies bound by off payroll rules in favour of overseas competitors
• Around one in four contractors (24%) have been asked or required to indemnify their clients against the risks of IR35 compliance.

The 2017 and 2021 reforms to IR35 – known as the off payroll working rules – had an immediate and damaging impact on the contractor sector. Now, with the launch of IPSE’s first IR35 Spotlight report, we reveal the long-term effects of the reforms and the trends emerging in UK contracting as a result.

Concerningly, the conditions created by the IR35 reforms are keeping a notable proportion of contractors out of work, with 1 in 10 (10%) reporting that they are not currently working due to IR35.

Despite the chilling effect that IR35 reform has had on the willingness of some clients to work with contractors and the availability of outside IR35 roles, contractors are resolutely defending their status as independent businesses. More than half (53%) reported that they have rejected an offer of work in the past 12 months solely because the engagement was deemed to be inside IR35, and three-fifths (62%) said that they intend to only work on outside IR35 engagements over the next 12 months.

Contractors are not only prioritising outside IR35 roles in the UK; in fact, more than a fifth (22%) plan to seek contracts with overseas companies as a result of IR35, delivering a knowledge and skills boost to competitor economies at the expense of UK PLC.

However, contractors that secure outside IR35 roles are now increasingly contending with the uncertain implications of indemnity clauses in their contracts; just under 1 in 4 (24%) contractors have been asked – or required – to agree to an indemnity clause by their client as a condition of securing an outside IR35 role.

Clauses that indemnify a client or agency from their IR35 liabilities in the event of HMRC enforcement have not been tested in a UK court, meaning it is unclear whether they are enforceable. Nonetheless, the growing prevalence of these clauses in contractor engagements is a concerning sign that HMRC’s damaging reforms have reallocated IR35 liabilities in name only.

Read the full report here