Research from digital payroll solution Cool Company, has found that twelve months on from the implementation of IR35, the UK’s contractors are still considering leaving their professions due to uncertainty concerning the new legislation. The outlook of contractors, however, does appear to be improving. While eight out of ten contractors originally believed that leaving their profession was the only way to navigate the new legislation, the number of contractors still considering doing so has fallen to 41 per cent, as the upheaval of IR35 has calmed and contractors and businesses have found new ways of working.
This news comes as Cool Company reports rapid expansion, experiencing 123 per cent growth during Q1 this year compared to 2021. Invoices in the same time period have increased 261 per cent and the number of contractors rose by 164 per cent.
The IR35 reform was put in place in order to further strengthen HMRC’s control over tax avoidance in the contractor marketplace. This has meant that businesses using contractors must ensure that they cannot legally be classified as employees. For many, the red tape surrounding this definition was too confusing and time-consuming, leading them to cease working with contractors entirely. But while the impact of this on the contract workforce was significant, Cool Company’s research indicates that things are improving.
A total of 39 per cent of contractors are no longer considering leaving their profession, and 21 per cent say that that was never an option. When asked how they would rate their overall experience of the first 12 months of the reformed IR35 legislation, almost two-fifths (37 per cent) said it was positive whilst only 20 per cent said they’d had a negative experience.
The research also showed contractors have been finding different ways to deal with the legislation. Whilst 70 per cent of contractors surveyed have considered using an umbrella company specifically to avoid issues with IR35, only whilst 30 per cent have pursued this avenue. And a further 29 per cent have not considered this option.
Despite this, on average, contractors say that 59.40 per cent of their contracts over the last 12 months have been inside of IR35 – more than before the legislation was introduced. When thinking back to the 2021 reform, most respondents believed that 55.45 per cent of their contracts would have been deemed inside of IR35, on average.
“While it is obvious that IR35 is continuing to affect the working lives of contractors and the businesses they serve, it is encouraging to find that the impact hasn’t been as devastating as originally predicted,” says Kris Simpson, Cool Company’s Head of B2C Business UK. “Although almost half of all contractors are still clearly experiencing a difficult time.
“Finding new ways to provide their services is the key for contractor success. This might be changing their client base, so that they work only with the smaller businesses not included in the reform. Working with overseas clients, beyond the reach of the legislation. Or finding clients through an umbrella company.
“With contract workers playing such an important role within the UK’s economy – 980,000 temporary workers on assignment every day during 2020 – it is integral that we find ways for them to thrive while adhering to IR35. So, perhaps more help needs to be given to the 41 per cent of contractors still considering leaving their profession.”