The IR35 Impact Survey conducted by compliance firm IR35 Shield has shown how the legislation has had a significant and damaging impact on contractors and the firms that rely on their talent.
The survey of 3,750 contractors sought to understand firms’ behaviour leading up to April 2021 and how the market has reshaped itself. The results indicate that whilst firms were attempting to recover from the pressure of a global pandemic, the new legislation created an additional and unwanted hurdle.
Key findings revealed:
• 47 per cent of respondents said that firms chose to impose blanket bans.
• 58 per cent claimed firms moved “most” or “some” of their work out of the UK.
• 50 per cent believed firms would have some long-term damage.
• 46 per cent said firms seeking to retain contractors needed to pay more.
• 65 per cent of firms lost at least half their contractors.
• 35 per cent of firms cancelled projects.
On the move to unregulated umbrella companies:
• 88 per cent of on-payroll contractors have been told they must use an umbrella.
• But, only six per cent of contractors say they are happy to use one.
• 78 per cent said they would be unable to detect a tax avoidance scheme.
Commenting on the findings, Dave Chaplin, CEO of IR35 Shield said: “Our survey shows that firms shot themselves in the foot under the new Off-payroll rules. They were ill-prepared and ill-informed by a government which was hell bent on its drive towards so-called tax fairness. The pressure on businesses during the pandemic and mixed messaging fuelled the decisions of firms to issue blanket bans, leading to commercial self-harm. The bans meant that many firms cut off their ability to hire the best talent, leading to cancelled and delayed projects. 48 per cent of contractors told us that firms moved some of their projects offshore – unnecessarily benching UK workers may not have been what the Treasury had in mind to increase the tax take.
“However, indications from our IR35 frontline shows that firms are now realising that the legislation is entirely manageable with a robust compliance process in place,” affirms Chaplin. “Those firms which implemented blanket bans as a knee-jerk reaction in the early days are now realising that they have no option other than to engage with the new rules and conduct proper assessments in order to attract the talent they need. It has been a challenging 2021 but it would appear that the blankets are starting to lift which is good news for contractors and for UK plc and the economy overall as we embark on a new year.”