Gig economy faces exodus in UK after IR35 changes

04 March 2020 Consultancy.uk

With the deadline for implementing new IR35 legislation looming large, many large businesses are bracing for an exodus of skilled contractors. According to a new study, around one-third of contractors averaging a daily rate of £554 are planning to stop contracting in the UK, once the new rules come into effect.

On April 6th, the IR35 regulation will see medium and large businesses forced to set the tax status of certain contractors and freelancers – where previously this tax status was set by contractors and freelancers themselves. The fact that the landmark legislation will allows HMRC to collect additional payment where a contractor is an employee ‘in all but name’ is something which many expect to have major repercussions for Britain’s burgeoning gig economy.

Following the change, contractors who had previously seen fit to trade job security and benefits – such as pensions contributions, holiday and sick pay, or parental leave – for a slightly higher salary will be forced to pay the same tax and National Insurance contributions as full-time employees. As contractors would then be essentially doing the same work, but for less, businesses subsequently fear an exodus of talented contractors – either abroad, or to British SMEs, who will be unaffected by the new reforms.

Some experts have rushed to assert that this need not mean “the death of UK’s big business freelancers,” arguing that companies which implement the required measures to ensure current contractors can be retained on a per-project basis will see both the financial and logistical burden of IR35 reduced as much as possible. Despite that, recent research has also suggested that over half of contractors will quit their roles when the reforms kick in.

Which of the following best describes what you would do if the changes to IR35 came into force?

Supporting this, a new study from the Association of Independent Professionals and the Self Employed (IPSE) suggests that 50% of contractors would only continue working as limited company/partnerships if they can find contracts in which the off-payroll rules do not apply. First, it would be quite an assumption to suggest all of those respondents will manage that, suggesting there will be a significant decline in contracting at big businesses right away. Second, a number of other responses were given, suggesting many are already thinking of heading elsewhere.

The IPSE is the organised voice of the UK’s self-employed population, which currently makes up one-in-seven people working today. Polling 3,481 freelancers in the UK with an average daily rate of £554, around 13% plan to find contracts abroad, while 11% plan to stop working or retire early and 8% plan to move into employment. Overall then, almost one-third of UK freelancers intend to stop contracting in the UK as of April.

Andy Chamberlain, Deputy Director of Policy and External Affairs at IPSE, said, This survey shows that the changes to IR35 are a clear and imminent danger to the self-employed sector and the businesses they work with right across the UK. Nearly a third of freelancers have said they plan to stop contracting in the UK – and many more are likely to follow if they can’t find contracts that aren’t affected by the changes. We need to be clear: this will do enormous damage to this £305 billion-a-year sector, which will have disastrous consequences for the wider economy.


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