How IR35 affected contractors in 2021
IR35 has arguably been the greatest disrupting influence for contractors for decades. According to Cool Company research conducted in November and December 2021, as many as 95% of contractors in the UK had considered leaving the industry following the implementation of the new IR35 rules.
The changes were impacting the ability of many to obtain work, employers were unsettled by the potential ramifications of the misclassification of contract workers and 65% of UK contract workers began looking for more work from EU clients. But despite the initial disruption, the fallout from the new legislation has been less dramatic than many people feared. So, how did IR35 really impact contractors in 2021?
The impact of IR35 on the UK’s contract workforce
Despite initial fears, based upon the late 2021 research, two-thirds (67%) of contractors rate their overall experience of the IR35 changes as positive. When questioned only 15% of contractors said that they believed IR35 to have had a completely negative impact on their working experience. So, how have the UK’s contractors adapted to the new legislation?
Umbrella company uplift
For the majority (53%) of contractors, umbrella companies have provided part of the solution for overcoming the problems raised by IR35. Working as a go-between for businesses and contractors, HMRC-registered umbrella companies manage contracts, payment, and worker rights. Lifting the burden of compliance from both contractors and the businesses they work with. As of December, 93% of contractors had considered working with umbrella companies to ease their way, following the implementation of IR35. The highest percentage (72%) to begin that journey being in the Property and Construction sectors.
New horizons and European migration
Some sectors have been more affected by IR35 than others. And the much-publicised driver shortage can at least partly be attributed to the new legislation. According to Cool Company’s research, 83% of contractors from the Transport and Logistics sector took work in Europe as British logistics companies found the new system too difficult to navigate.
And while it might not be an ideal solution, IR35 has encouraged many contractors to look even further afield for their work. In fact, more than half (52%) have begun searching for clients from non-EU sources – those working within the legal sector accounted for 89% of these.
Bad PR
On the downside, IR35 appears to have hit the Marketing, PR, and Advertising sectors pretty hard. With a fifth (19%) of all contractors who identified their experiences since the implementation of the new legislation as entirely negative working in this area.
What does the future hold?
At the end of last year, 6 in 10 (58%) contractors were considering leaving the business, and taking on permanent positions instead. 83% of the respondents from the Performing Arts industry said that they had already done so. So, it would appear that the future alternatives awaiting contractors are the decision to embrace IR35 workarounds – such as adopting umbrella company services or seeking overseas clients – and taking on permanent roles.
If the latter option gains traction, it could spell difficulties ahead for the wider business community, while umbrella companies offer a way to maintain the status quo. The next year will be very interesting for all concerned.
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