IR35 reforms damage the ability for businesses to grow, new IPSE research finds

The research of 501 businesses conducted by YouGov on behalf of IPSE looked at the impact of IR35 reforms on the clients of self-employed workers. It found that the changes to the off-payroll working rules have had devastating economic consequences for businesses, with over two in five companies (42%) reporting that the IR35 reforms have had negative financial implications for their business. 

Implemented in April 2021, IR35 has shifted the responsibility for determining a self-employed worker’s employment status from individual freelancers to their clients. The reform has been widely criticised, with a number of organisations, freelancers, opposition parties and even some Conservative MPs calling out the reforms as flawed. It has also caused mass uncertainty in the sector, with ISPE research finding that more than a third of freelancers (35%) have closed their businesses since the changes.

Derek Cribb, CEO of IPSE (the Association of Independent Professionals and the Self-Employed), said: “While the media, over the past year, has mainly analysed the significant and damaging impact of the reforms on self-employed workers, today’s research shows that the changes to off-payroll working has also hindered their clients. Businesses have long relied on freelancers to provide additional expertise and support. The changes to IR35 in the private sector in April 2021 have made it harder for them to hire contractors and has therefore made it even more difficult for them to grow during these turbulent economic times.

“If the government wants to help companies recover post-pandemic, then it needs to start by rethinking IR35. Self-employed workers provide a valuable service for businesses and without a governmental review or further reform, companies will find they aren’t able to hire the necessary skills and talent that freelancers provide and that they are recovering at a slower pace compared to international competitors.”

IR35 legislation in practice

With IR35 being widely criticised for being confusing and overly complicated, the research found that IR35 has been a significant administrative burden for almost one in two (47%) businesses.

Moreover, while the reforms state that companies need to assess a freelancer’s employment status on an individual basis, one in five (20%) businesses have made a blanket assessment and decided that all their contractors are within IR35.

In terms of carrying out an IR35 assessment for current engagements, over a quarter (26%) reported that they use the government’s CEST (Check Employment Status for Tax) tool whilst over one-fifth of businesses (22%) stated that they make IR35 assessments themselves without using any tools or software. Of those that use CEST, the research found that it had led to a 35 per cent decrease in contractor engagement. It has been revealed by HMRC’s own statistics to be unable to make a determination in almost one in five (19%) cases.