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Study finds IR35 changes driving contractors out of self-employment

The IPSE says the IR35 changes have had a "devastating" impact on contractors.

More than a third of contractors have left self-employment since the changes to IR35 tax rules in April, according to new research.

The Association of Independent Professionals and the Self-Employed (IPSE), which carried out the study, said many had opted for permanent employment, retirement, or overseas work, or were simply not working.

The research also found that, of those who remain, more than a third are now employed through unregulated umbrella companies and another 36% are working through engagements deemed to be “inside IR35.”

The IPSE said working inside IR35 not only left contractors essentially in “no-rights employment,” but also had significant financial consequences.

Four fifths of contractors who took part in the survey and were working inside IR35 said they had seen a drop in their quarterly earnings, by an average of 30%.

Under the new rules, clients are now required to give contactors a Status Determination Statement (SDS) to confirm their IR35 status, but nearly two out of five said that had not happened.

Impact of changes has been ‘devastating’

IPSE director of policy, Andy Chamberlain, said: “This research shows the devastating impact the changes to IR35 have had on contractors, needlessly compounding the financial damage of the pandemic and the unnecessary gaps in support.

“Now, just when contractors are needed most – amid mounting labour shortages across the UK and particularly in haulage – government decisions have driven out a third of the sector.

“Not only have the changes to IR35 driven large parts of the contracting sector out of self-employment: they have made things needlessly and enormously more complex for those who remain.”

Mr Chamberlain continued: “Contractors now find themselves with myriad different and complex ways of working – each with its own pitfalls.

“They are now divided between those still managing to work outside IR35, those working through unregulated – and sometimes unscrupulous – umbrella companies, those working inside IR35 for less pay and with no rights, and others now on client or agency payrolls.

“There is one word and one word only for this situation: a mess. Now, government must clear it up. We are urging government to review the situation in the contracting sector and be open to radical steps based on that – including, if necessary, repealing the changes altogether.”

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