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Almost nine in 10 businesses have been forced to increase rates of pay for contractors since IR35 rules were extended to the private sector in April.
A poll by Brookson Legal found that three-quarters have had to increase rates by more than 10%, more than double the average annual wage growth of 4.9% reported by the Office for National Statistics between July and September this year.
The reforms, which were introduced for public sector employers in 2017 and introduced this year to the private sector after being delayed by the pandemic, push the responsibility for determining a contractor’s employment and tax status onto the business rather than the individual.
At the same time, businesses are facing huge talent shortages and need access to flexible skills, particularly in areas such as haulage and logistics, where IR35 rules have been cited as one of the reasons behind the HGV driver shortage.
More than three-quarters of employers are now finding hiring flexible workers to be challenging or very challenging, according to Brookson. Despite this, 90% plan to extend their use of contractors over the next 18 months.
However, while around a third (31%) are concerned about unforeseen tax bills if they use contractors who appear to be outside IR35 but are then found by HM Revenue & Customs to be inside the regulations (and therefore liable for higher tax and national insurance), more are worried about costs and their ability to attract talent.
More than half (53%) cited contractor costs as driving their business behaviour over IR35, and 42% cited talent attraction. Forty-two percent also felt project delays had driven choices over whether to hire contractors.
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