A study has exposed the significant financial impact of off-payroll working rules (IR35 reform) on freelancers and contractors who say they have been wrongly placed inside IR35 by their clients.
The research, conducted by IPSE, the self-employed trade body and Qdos, an IR35 specialist, is based on responses from 184 contractors and highlights the long-term financial damage caused by widespread risk-averse hiring practices following the introduction of the off-payroll working reforms in the public and private sectors.
The reform saw contractors’ clients become responsible for determining if the service provided was carried out in a manner reflective of self-employment or employment. The findings show that the contractors who have been assessed by their clients as being ‘employed for tax purposes’, estimate they have paid an average of £44,000 more in tax as a result.
More than one in five respondents (21 per cent) estimated that operating inside IR35 had cost them between £20,000 and £29,999 in additional tax. As many as 12 per cent said the reforms had cost them more than £100,000 since their introduction.
“These figures lay bare some of the real-world consequences of flawed IR35 decision-making and a needlessly risk-averse approach to the off-payroll working rules,” said Seb Maley, Qdos CEO. “Across the UK, thousands of contractors have effectively been taxed as employees in recent years – despite them feeling strongly that they are genuinely self-employed. This is a situation that is encountered all too often.
“It’s also important to note that these figures don’t factor in the contracts that individuals have simply turned down, as a result of being left with no choice but to work on the payroll irrespective of their actual IR35 status. This would take the true cost of the reform even higher.”
Vicks Rodwell, Managing Director at IPSE, the Self-Employed Association, said: “When clients default to risk-averse decisions, it’s skilled contractors who absorb the consequences, whether that’s turning down work, leaving contracting altogether, or accepting a tax status they don’t believe reflects how they actually work.
“That has a knock-on effect for the whole market. Businesses lose access to flexible, experienced talent, and contractors lose confidence in a system that’s meant to assess their status fairly.
“Government should see this research as further evidence that the off-payroll working rules need another look, not just for the cost to individuals, but for what it’s doing to the contractor market as a whole.”
