More than a third of UK contractors expects to see a huge loss in earnings due to IR35 reform, according to a new study.
The reforms, enforced in April, have left 1 in 3 contractors expecting to miss out on more than £20,000 in pay.
The details are revealed in a study by small business insurance provider Simply Business. For the research, 250 contractors from a range of sectors including IT, business management, finance, design and marketing were polled.
Despite the long run-up to the introduction of IR35 reform – including a one-year delay due to COVID-19 – the study found that 52% of UK contractors felt underprepared and still need more time to adjust.
Loss of income was identified as the leading concern.
The research showed 32% of contractors expect to miss out on more than £20,000 in take-home pay and 20%) expect to miss out on between £10,000 and £20,000.
Unveiling its findings, Simply Business shared the views of two contractors.
IT contractor Kevin Neal said: “The IR35 reform means I have lost an eighth of my pay to tax, fees and pension, which will have a substantial impact on my income. I feel persecuted for doing nothing more than trying to earn a living. I pay my taxes, I always have. The Inland Revenue should focus on those who do not instead of making sweeping changes that affect everyone.”
Fellow IT contractor Bill Cunnew added: “I contracted for 26 years through my own limited company, I earned good rates but due to IR35 the banking and insurance sector has just stopped taking LTD company contractors. After one year out of work I was forced to take a permanent job on a lot less money, as a result I am now paying about 25% of the tax I paid as a contractor.”
At the heart of the latest IR35 reforms was making large and medium-size private businesses responsible for deciding whether any individuals who provide their services via an intermediary are ‘deemed employees’ for tax purposes.
This means contractors and their clients need to consider changes they may need to make for IR35 if they haven’t already.
UK CEO at Simply Business Alan Thomas commented: “The new IR35 rules will affect so many contractors across the UK and could see many miss out on a substantial part of their income. Contractors are a vital part of the economy, and with one in three now expecting to miss out on over £20,000, the impact of the new rules will be felt up and down the country.
“We know the last 12 months have been especially difficult for contractors, and that despite IR35’s delay, many still find the legislation difficult to understand. So, it’s unsurprising that nearly a fifth of those surveyed (18%) are concerned about not making the right changes and fear being taken to court or getting fined later down the line.
“Clearly, the IR35 reform has complexity, and while it’s vital that contractors prepare as much as they can, we would call for more support and simplicity in the process.”
Read more on the Simply Business website.
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