IR35: one in five highly-skilled contractors not working

One in five highly-skilled contractors are currently not working amid rising economic inactivity, with many attributing their absence to reforms to off-payroll working rules.

A survey of 1,300 freelancers in highly-skilled roles by the Association of Independent Professionals and the Self-Employed (IPSE) found that 21% are out of work, with 50% stating this was because of the controversial IR35 tax changes that were introduced in the private sector in 2021.

Fifty-five per cent of contractors rejected an offer of work in the past 12 months due to being deemed inside IR35 by a client – meaning that HMRC would see their work with an organisation as an employment relationship.

Fifty-two per cent said they were in-between roles, up from 37% in 2023’s survey. Nearly one in five (18%) not currently working felt there was no incentive to return to the labour market.

According to the Office for National Statistics, around one-fifth of the working-age population is economically inactive and not looking for work.

IPSE policy director Andy Chamberlain said: “Three years later, the off-payroll rules are still keeping thousands of highly skilled individuals out of work. It’s staggering that the Chancellor is happy for this to continue at a time when economic inactivity is one of his biggest concerns.”

“Our findings show that contractors want to prioritise clients who are willing to hire them on a freelance basis, and happy to walk away from those who won’t – even if this means not working at all.

“The blame for this impasse doesn’t rest with clients – it rests with the culture of fear that is propagated by the IR35 rules. Having noted HMRC’s dogged determination to win high profile IR35 battles with TV stars – brushing off successive court defeats in the process – hirers are concluding that working with freelancers risks inviting too much hassle from the taxman.”

Chamberlain said that chancellor Jeremy Hunt should “get round the table with those who dealing with the real-world impacts of these reforms” if he is serious about cutting economic inactivity.

Dave Chaplin, CEO of IR35 compliance firm IR35 Shield, described the IR35 reforms as “anti-business”.

“When tax becomes too taxing, people stop working – this is hardly surprising. The sad thing is there will be thousands of highly experienced people who would work but are choosing not to because they cannot be bothered to entertain the friction caused by IR35,” he said.

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