Independents find IR35 'more damaging' than Covid-19 or Brexit

10 December 2021 Consultancy.uk 4 min. read
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The Association of Independent Professionals and the Self Employed has found that the confidence of freelance workers in the UK economy has collapsed, since reforms of IR35 came into effect in 2021. The study found a third of independents surveyed had left self-employment since the changes were launched.

In the years running up to the pandemic, the UK’s number of self-employed people had boomed to 5 million workers – 2 million of whom were freelancers. The number was still growing before lockdown, as individuals found they could dictate their own schedule and the type of work they engaged with, while also enjoying better pay and work-life balance, outside of a firm.

As with every other sector, though, the UK’s freelance economy took a hefty hit from the coronavirus outbreak. Earlier in 2021, research suggested that two-thirds of the sector’s workers were negatively impacted. Meanwhile the Association of Independent Professionals and the Self-Employed found that close to one-fifth of freelancers would now consider a return to salaried life as a result.

Freelancers’ confidence in their businesses and the UK economy

Things do not look like they are likely to improve in the coming months, either. While studies since have suggested satisfaction with work among independents has since rebounded with regards to the present, the future remains another matter entirely. In particular, freelancers seem extremely pessimistic about the impact tax and regulatory changes are about to have on their businesses.

According to new research from the Association of Independent Professionals and the Self Employed (IPSE), confidence among freelancers in the UK economy has plummeted toward the end of 2021, with a 36-point drop in sentiment for the coming 12 months. Meanwhile, freelancers also felt less optimistic for their own enterprises, with optimism for the coming year falling by almost 16 points.

IR35

The IPSE’s quarterly analysis was compiled from 754 individuals who replied to an online survey. In spite of the chaotic 18 months they had endured thanks to the pandemic and Brexit, a majority of 70.8% believed the key detrimental factor on their financial wellbeing this quarter has been the recent changes to government tax policy. Around 40% said this made them less confident in their business’ performance for the next year.

Top factors lowering business performance in Q2 2021

Derek Cribb, CEO of IPSE, commented, “While headlines continue to focus on the pandemic, Brexit and supply chains, it is clear from the IPSE Confidence Index that there is only one issue dominating the lives of freelancers: IR35. The changes to tax rules in the private sector in April have sown seeds of doubt and uncertainty into the UK’s self-employed, with a significant number abandoning contract work altogether.”

“While it is promising to see increases in day rates, quarterly earnings and work, without changes to IR35, self-employed workers won’t receive the benefits of their hard-earned work. Clearly, the government needs to re-evaluate the IR35 rules in light of the disruption and uncertainty they are causing business.”

Reformed IR35 regulation was originally slated for April 2020, but was pushed back by one year due to the pandemic’s onset. Critics at the time noted it would 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. This was something which would allow HMRC to collect additional payment where a contractor was an employee ‘in all but name,’ something which many expected to have major repercussions for Britain’s gig economy.

Since it was implemented in April 2021, many firms adopted blanket agreements to comply with the regulations. Something experts noted were already being deemed “likely to attract less skilled resources with lower quality experience to companies for their specific projects requiring unique expertise.”

For freelancers themselves, the impact has been even worse though. IPSE found that 35% of contractors had left self-employment since the changes.