The introduction of IR35 reforms this year had a “significant and damaging” effect on contractors and the firms that rely on them.
A survey of 3,750 contractors by compliance platform IR35 Shield found that many organisations have imposed a blanket ban on contractors, moved work overseas, or culled a significant proportion of their contractor workforce.
Almost half (47%) of the contractors polled said that firms they had worked with banned the use of contractors after the reforms were introduced in the private sector on 6 April 2021.
Fifty-eight per cent claimed firms moved most or some of their work out of the UK, and 65% said firms lost at least half of their contractors.
Half thought the new rules would have caused long term damage to organisations, and 35% said that some firms have cancelled projects as a result of the new protocols, which shift the responsibility for determining a contractor’s employment status for tax purposes onto organisations.
Dave Chaplin of CEO of IR35 Shield said: “Our survey shows that firms shot themselves in the foot under the new off-payroll rules. They were ill-prepared and ill-informed by a government which was hell bent on its drive towards so-called tax fairness.
“The pressure on businesses during the pandemic and mixed messaging fuelled the decisions of firms to issue blanket bans, leading to commercial self-harm. The bans meant that many firms cut off their ability to hire the best talent, leading to cancelled and delayed projects.”
However, Chaplin said that many firms are now realising that the legislation can be managed if they have robust compliance processes in place.
“Those firms which implemented blanket bans as a knee-jerk reaction in the early days are now realising that they have no option other than to engage with the new rules and conduct proper assessments in order to attract the talent they need,” he said.
“It has been a challenging 2021 but it would appear that the blankets are starting to lift which is good news for contractors and for UK plc and the economy overall as we embark on a new year.”
Those firms which implemented blanket bans as a knee-jerk reaction in the early days are now realising that they have no option other than to engage with the new rules and conduct proper assessments in order to attract the talent they need” – Dave Chaplin, IR35 Shield
The majority (88%) of on-payroll contractors have been told that they must work via an umbrella company, but only 6% are happy to use one.
The use of umbrella companies have come under fire as critics claim some exploit contractors by withholding holiday pay and make errors in national insurance payments.
The government has published a call for evidence to help it better understand umbrella companies and the role they pay in the labour market.
Earlier this year MPs voted against introducing further regulation.
Chaplin said: “We welcome this latest consultation into the umbrella market as hundreds of thousands of workers are now being given no option but to use one. Since the roll out of the off-payroll legislation, we have witnessed a significant rise in the proliferation of disguised remuneration schemes that have duped contractors into signing up for them.
“Worryingly, our survey told us that 78% of contractors cannot detect a tax avoidance scheme from a compliant one. That is a ludicrous position, when hundreds of millions, if not billions of pounds are being channelled through an unregulated sector.
“We need to close the door on disguised remuneration schemes, but more importantly on payroll skimming and scamming for other non-compliant ones. There are some very simple, quick and efficient ways to do this, but I expect to see considerable pushback from vested interests who have £millions of reasons for maintaining the status quo.”