IR 35 Contractors are “right to be fearful of HMRC reform

Most self-employed workers believe that IR35 is the biggest threat to their business in 2022

 

IR 35 Contractors are “right to be fearful of HMRC reform

Continuing scepticism from contractors around new IR35 rules is justified with public attention having been momentarily diverted from the issue due to the pandemic, the war and other economic factors.

IR35: A ‘forgotten crisis’

The introduction of IR35 reform on April 6, 2021, saw the responsibility for assessing status shift from the contractor to the medium or large business engaging them.

As part of this reform, which mirrors changes introduced in the public sector in 2017, the liability also shifted from the contractor to the fee-paying party in the supply chain (either the recruitment agency or client).

ESB thinks that a lot of companies did rush into potentially rash decisions, theorising that the pandemic has combined with the new rules to create a significant uptick in ‘inside-IR35 roles’ for contractors. A lot of preparations for the changes were quite rushed and perhaps weren’t top of the agenda.

IPSE research from December 2020 paints a similar picture. More than 70 percent of freelancers believe that the most detrimental factor to their financial wellbeing has been the recent IR35 changes, it found.

They went on to argue that wholesale change needs to take place on a societal and legislative level if the contractor sector is to return to a healthy state.

Put simply, without media and industry pressure and a governmental review, the changes to IR35 will continue to burden the whole supply chain, making it increasingly difficult for freelancers to make a living and for UK companies to source the flexible expertise they need to get projects done.

Room for optimism?

In fact, April to November 2021 saw an 83 percent rise in contractors deemed outside-IR35 by their clients. In addition, 39 percent of contractors said that they are confident about their prospects for 2022.

If you take a hard-line approach and say that you don’t want to engage contractors, then you’re cutting out vast swathes of that available market.

We’ve seen a lot of very large companies who really have tried to do things properly and made sure that they are both compliant from a tax point of view but are also able to engage contractors outside IR35 and are therefore able to attract the best talent.

Contracting and the wider economy

The significance of the contracting sector us huge as it contributes more than £300bn to the economy each year.

There’s always this misinterpretation that contractors in some way dodge tax, whereas the opposite is true when you actually look at the economic impact that the industry has. There’s obviously the contractors themselves providing the services, but there’s also tall of that support that goes around it.

Accountants are a prime example of this, noting that we play a key role in supporting the contracting sector. Historically we’ve taken a prime position in terms of providing contractors with advice around IR35 and the tax risks.

However, since the 2021 reforms, a push from agencies and clients to edge contractors into umbrella companies has left the services of accountants redundant in many cases.

However the tide may be turning and that accountants could be presented with new opportunities in the coming months and years. What’s very clear now is that there are a lot of new people coming into contracting. I think there’s a big opportunity for accountants to be on the crest of that wave.

Please talk to us at ESB Accountancy to discuss how your business can comply with the new tax, finance and accounting laws – with several decades of financial experience here in Gloucestershire you can either ring us now on – email us on edith@esbaccountancy.co.uk or click the Contact Us buttonpayroll bookkeeping services small business help contact esb accountancy gloucestershire cheltenhamor please fill the form at the bottom of the contact us page.

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