Survey indicates strong dissent among freelancers for IR35 rules

Over two-thirds respondents urged the government to consider scrapping the legislation in the upcoming Spring Budget

Three years after the implementation of controversial IR35 rules in the private sector, nearly half of contractors claim they have been incorrectly labelled as "employed for tax purposes."

A recent survey conducted by insurance provider Qdos, involving over 900 contractors, found that 43% of respondents felt they had been subject to a blanket determination of their IR35 status, regardless of their actual employment status.

Over two-thirds (68%) are urging the government to consider scrapping the legislation in the upcoming Spring Budget in March.

The survey highlighted that nearly 50% of respondents, particularly in the IT contractor sector, identified the IR35 reform as a significant factor contributing to poor business performance in 2023.

The Qdos survey indicated varying levels of compliance among hiring companies, with some effectively navigating the complex rules and implementing fair assessment systems. However, others opted for a more risk-averse approach, especially in the financial services sector, where large banks have been reluctant to engage contractors working through limited companies.

Political parties did not escape scrutiny in the survey, as 63% of contractors expressed dissatisfaction with the support offered by the major parties on freelancer issues.

The IR35 rules, in effect since April 2021, aimed to clamp down on disguised employment and prevent individuals from minimising employment tax by posing as contractors when they were, to all intents and purposes, full-time employees,

Contractors were earlier required to self-declare their tax status, either as inside IR35 (taxed as employees) or outside IR35 (taxed as self-employed).

The reforms shifted the responsibility of determining the tax status of freelancers from themselves to their hiring companies, causing widespread discontent among the freelance workforce.

According to analysts, the changes introduced added administrative burdens for end-hirers, leading to hiring bans in both the public and private sectors.

Seb Maley, CEO of Qdos, highlighted the challenges faced by contractors, stating, "Every year, the complex and confusing IR35 legislation stands out as the one freelancers and contractors want addressing most by Westminster. But time and time again, the powers that be choose to bury their heads in the sand."

"There are many contractors who have managed IR35 for years and genuinely believe they are self-employed but, in some circumstances, they are not given the opportunity to prove their status."

As the Spring Budget approaches, contractors are not only calling for a potential repeal of the legislation but also urging the government to address major issues related to IR35 and the off-payroll working rules.

Maley outlined specific areas that need attention, including the overhaul of HMRC's IR35 tool, CEST, and the facilitation of well-informed and compliant IR35 decisions by businesses.

Contractors have been demanding a more streamlined and fair system that accommodates the complexities of freelance work without hampering the business environment.

HM Revenue & Customs defended the reforms, asserting that they ensure fair tax contributions from those working like employees.

"We've provided extensive support to help organisations implement the rules and the majority of organisations are getting their status determinations right," it said.

"Where we identify an organisation which is not making correct determinations, we will work with them to ensure they become compliant."