Third of contractors have left self-employment ‘when firms need them most’

More than a third of contractors have been forced out of self-employment over the past 12 months because of the introduction of IR35 reforms, which has potentially reduced employers’ ability to access flexible skills.

The Association of Independent Professionals and the Self-Employed (IPSE) found that 35% of contractors have either moved into permanent employment, begun working overseas, retired, or have not been working since the changes to off-payroll working in the private sector were implemented in April 2021.

The changes meant that the responsibility for determining the employment status of a contractor shifted to the organisation using their services, which campaigners believed would put organisations off using contract workers.

Many continuing to work in contract roles have turned to an umbrella company (34%), or are working through engagements deemed inside IR35.

One in 10 respondents to IPSE’s survey said their clients had implemented a blanket ban on all contractors, while one in five said their clients had blanket assessed all contact engagements as within IR35.

IPSE director of policy Andy Chamberlain said that contractors were “vital” for economic recovery as they provided flexible skills to businesses trying to upscale or adapt following the pandemic.

He urged the government to review the IR35 reforms in the private sector and to be open to repealing them if needed.

“This research shows the devastating impact the changes to IR35 have had on contractors, needlessly compounding the financial damage of the pandemic and the unnecessary gaps in support. Now, just when contractors are needed most – amid mounting labour shortages across the UK and particularly in haulage – government decisions have driven out a third of the sector,” he said.

“There is one word and one word only for this situation: a mess. Now, government must clear it up. We are urging government to review the situation in the contracting sector and be open to radical steps based on that – including, if necessary, repealing the changes altogether.

“Government must also urgently set out detailed regulations for how umbrella companies should operate and also work to clear the confusion across self-employment by clarifying when it is right for people to operate as sole traders, employees or limited companies.”

IPSE’s report also found that:

• Contractors who worked through umbrella companies were dissatisfied with employers’ National Insurance arrangements (33%) and holiday pay (24%)
• Nearly four in 10 freelancers had not received a status determination statement (SDS) from their client – now a legal requirement for firms using contractors
• 72% of freelancers covered the liability of employers’ NI and the apprenticeship levy through a reduction in their day rate.

The government has faced repeated calls to regulate umbrella companies, but MPs earlier this year MPs voted against amendments to the Finance Bill that supporters hoped would “curb or kill” umbrellas.

Crawford Temple, CEO of payment intermediary compliance assessment service Professional Passport, said it was disappointing that 38% of contractors had not been issued an SDS.

“It is now a legal requirement for contractors to be issued with SDS’s and those clients who do not provide one are not meeting their legal obligations and could be at severe risk under the legislation of facing significant debts. It is the perfect storm waiting to happen,” said Temple.

He added that contractors should be wary of umbrella company deals that seem too good to be true.

“I would like to point out that there is no regulation in this industry and this is an ongoing debate. My message to workers is that if they are offered something that is too good to be true then it is probably a disguised remuneration scheme that will set them up for financial difficulties in the future,” he said.

“HMRC already holds all the information it needs to stamp out disguised remuneration schemes and rid the industry of criminal activity but is not acting on it. As a result, the lack of inactivity has enabled more and more schemes to set up and more and more contractors duped into taking on significant personal financial risk as a result.”

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