IR35 is contractors' top concern for 2023

Comes in ahead of tax rises and the cost of living

The IR35 legislation introduced in 2021 is contractors' biggest concern about the coming year, according to a survey conducted by IR35 insurance provider Qdos.

As part of its Annual Contractor Survey, Qdos quizzed 700 freelance workers about the main issues affecting independent workers in the UK.

More than a third of this year's respondents (36.2%) said the IR35 legislation is their biggest worry for 2023, in contrast to those who see rising cost of living (31.7%) and upcoming tax rises (25.2%) as the key hurdles to overcome.

In addition almost two-thirds (61.1%) said the IR35 legislation was the 'biggest contributing factor' towards poor business performance in 2022.

"Whichever way you look at it, the introduction of the off-payroll working rules has made operating outside the scope of IR35 more difficult for genuinely self-employed contractors," said Qdos CEO Seb Maley.

The Government rolled out changes to off-payroll working rules, commonly known as IR35, to the public sector in 2017 and the private sector in April 2021. The change made medium and large-sized private and public sector organisations responsible for determining the tax status of the contractors they engage: as off-payroll workers or permanent employees.

Under previous IR35 rules, which were in place for nearly 20 years, contractors were allowed to self-declare their tax liabilities. HMRC, however, believed that system was open to abuse whereby some individuals could falsely declare their tax status to cut the amount they had to pay.

While eight out of ten contractors claimed they were able to acquire a contract outside of IR35 in 2022, up 15.4% from 2021, nearly half (44.3%) said it was challenging.

The majority of contractors (61%) believe it will be more difficult to find contracts outside the scope of the IR35 legislation this year.

According to Maley, there were some bright spots that might be gleaned from this aspect of the survey.

"This is hugely positive given that the vast majority of contractors, in our view, belong outside IR35. But there's clearly still a lot of work to be done, particularly by businesses."

"Far too many have insisted that contractors operate on the payroll, regardless of their true IR35 status. This is a needless, expensive and sometimes even non-compliant approach to managing IR35."

Maley said HMRC is also not hiding its increasing IR35 compliance efforts.

"This will no doubt play on the minds of contractors, and indeed businesses, which can also be hit with massive tax bills for non-compliance."

Last year HMRC came under fire after a report from the National Audit Office (NAO) found the agency was collecting more tax than it was due.

The report said HMRC was failing to advise contractors that they could be eligible for a tax refund if the public sector organisation they work for was found to have failed to properly implement the new IR35 laws.