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More than four in 10 businesses could phase out contractors due to IR35

A number of business owners said that they will take 'drastic action' when procuring contractors because of incoming IR35 rules

 Business owners will be reviewing how they hire contractors because of IR35 legislation

Business owners will be reviewing how they hire contractors because of IR35 legislation

New research reveals that as many as four in ten businesses (41pc) will review their strategy around contractors come April 2020 when IR35 is introduced.

The survey from bedigitaluk.com is part of ongoing study into the way that British businesses are preparing for the IR35 legislation. Off-payroll rules are being brought in to combat tax avoidance caused by workers supplying services to clients through an ‘intermediary’.

Out of the 1,500 British business owners surveyed, just under two thirds (65pc) were aware of the IR35 legislation and have a plan set to deal with the law changes. After being informed on what IR35 is, 41pc said they will look to review their strategy for procuring contractors into their businesses. Just over one in ten (11pc) said that they would take more drastic action by decreasing contractor numbers, having a potentially damaging effect on critical projects.

When asked if they’d switched to outcome-based ‘statement of work’ (SoW) contracts, only one in five businesses had done so. Though it’s not that simple – 45pc of businesses admitted to being confused around what action to take next.

Which sectors are struggling the most with IR35?

Those operating within the construction sector were most confused by the incoming legislation. We’ve got a breakdown of the top five:

SectorPercentage (pc)
Construction56pc
Hair and beauty48pc
Food service43pc
Travel41pc
Marketing38pc

Only 32pc of businesses felt IR35 is a positive step in ensuring fair pay and tax implementation on UK contractors.

Richard Tyler, a spokesperson for www.bedigitaluk.com, commented:

“The results of this research clearly highlight the need for businesses to gain a much broader understanding of what the upcoming IR35 means, and how it will affect their company finances.

“Whilst the new off-payroll rules present a level of risk to businesses in the short-term, acquiring services using outcome-based SoW’s is a sensible way of reducing risk. However, if businesses do not adequately prepare for the changes, it may quickly create unexpected costs and issues”.

IR35 review

The news of a six-week government review into IR35 has not impressed the experts.

Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA), said: “This seems to be another meaningless review from a government who seems intent on bulldozing ahead with its plans anyway.

“We have also learned today that the review will focus on the implementation of the reforms rather than the reforms themselves, which is not what was suggested and is not what is needed. I fear that [the] pledge is simply the government paying lip-service to empty election promises and nothing short of an insult.”

Head over to Freelancers call government 6-week review into IR35 ‘an insult’ to find out more.

Further reading on IR35

6 top tips to prepare for IR35 tax changes – Small Business checklist

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