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Freelance workers are increasingly turning down work that would mean they are affected by controversial tax rule changes, known as IR35, according to new research.
The decision about whether freelancers working in the private sector should be considered self-employed for tax purposes (“outside IR35”) or employed for tax purposes moved from contractors to their hirers in April 2021.
Similar rules have been in force in the public sector since 2017.
The clampdown has taken place to tackle so-called “disguised employees”. These are people who, despite working like ordinary employees, bill for their services via limited companies and avoid paying income tax and national insurance. Instead they pay corporate taxes and dividend tax, which are typically lower.
The contentious changes have complicated the process of judging employment for both individuals and their hiring business. A survey of 1,500 of the highest skilled contractors has found individuals are increasingly trying to avoid working under the IR35 rule changes.
More than 53 per cent of respondents said they had rejected an offer of work in the past 12 months because the job had been deemed to be “inside IR35”. This was up from 31 per cent in the previous survey. Meanwhile, 62 per cent said they intended only to work on engagements categorised as outside IR35 in the following year — up from 55 per cent in the previous survey.
A further 22 per cent said they intended to seek work abroad — taking advantage of the fact that overseas businesses are exempt from the rule changes. In a similar vein, 29 per cent said they intended to seek work with small businesses — as the rules only apply to medium-sized and large businesses.
Andy Chamberlain, director of policy at IPSE, the Association of Independent Professionals and the Self-Employed, said the figures were a “damning legacy for a government which has prioritised labour market participation”.
“Freelancers and contractors are refusing to be corralled on to company payrolls. Instead, they are working with firms that respect their status as independent businesses, both at home and abroad,” he said.
The survey also found that contractors who had accepted work advertised as outside IR35 are increasingly asked to sign contracts to indemnify their hirers, in case of a tax investigation.
Nearly a quarter (24 per cent) of the 1,500 individuals surveyed had been asked or required to agree to such a clause as a condition of securing the work.
“The growing prevalence of these clauses in contractor engagements is a concerning sign that HMRC’s damaging reforms have reallocated IR35 liabilities in name only,” Chamberlain added.
The Treasury did not provide a response.
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