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Nearly half of contractors believe they have been wrongly classified as “employed for tax purposes” by their hiring companies, three years after controversial rules on freelance workers were rolled out in the private sector.
Since April 2021, the decision about whether freelancers working in the private sector should be considered self-employed for tax purposes — known as “outside IR35” — or employed has moved from contractors to their hirers. Similar rules have been in force in the public sector in 2017. The switch puts the final responsibility for paying the right tax on the hirers.
The complex reforms to off-payroll workers have attracted controversy since first proposed and led to an ultimately unsuccessful attempt by business and freelancer lobby groups to stop the rule changes coming into effect.
A survey of more than 900 contractors published this week showed that many workers remain dissatisfied with the changes.
It found 43 per cent of people surveyed believed they had been subject to a blanket determination of their IR35 status or categorised as inside IR35, irrespective of their true employment status.
Seb Maley, chief executive of Qdos, an advisory firm which ran the survey, said contractors still faced “a difficult situation in lots of areas”.
“There are many contractors who have managed IR35 for years and years and genuinely believe they are self-employed but in some circumstances they are not given the opportunity to prove their status,” he added.
Some hiring companies had been better at getting a grip on the complicated rules and at developing systems to fairly assess contractors, Maley said, but others had simply decided not to hire contractors working through limited companies.
Financial services, particularly large banks — which had been big users of temporary workers — were among the firms taking a more “risk averse” approach, he added.
The survey also found that contractors were dissatisfied with political parties’ support for freelancer issues.
Presented with a list of the major parties, 63 per cent of contractors suggested “none of the above” represented their best interests. Around 11 per cent of respondents chose the Conservative party, and 9 per cent the Labour party.
Reforms to IR35 were the top issue that surveyed contractors chose, with 68 per cent of them wanting to see IR35 reform reversed. This was three times more than the second top issue selected by 19 per cent of contractors, which was to see the recent increase to corporation tax reversed.
In separate news, IPSE (the Association of Independent Professionals and the Self Employed) reported 68 per cent of freelancers surveyed in its Freelancer Confidence Index cited government tax policy as a detrimental factor on their freelance business performance.
Andy Chamberlain, director of policy at IPSE, said: “We know from talking to our members that IR35 is still a very difficult issue. Many of them are disagreeing with their clients’ assessments. But they either have to accept it to secure the contract, or walk away.”
HM Revenue & Customs said the reforms “ensure those who work like employees pay tax like employees”.
“We’ve provided extensive support to help organisations implement the rules and the majority of organisations are getting their status determinations right.
“Where we identify an organisation which is not making correct determinations, we will work with them to ensure they become compliant,” it said.
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