IR35 reforms: Contractors cite tax avoidance legislation as ‘biggest concern’ in 2023

Negotiating the UK government’s IR35 tax avoidance legislation remains the biggest concern for contractors in 2023, according to survey findings compiled using feedback from 700 freelance workers.

The survey is a recurring piece of research, conducted on an annual basis by IR35 insurance provider Qdos, with more than a third of this year’s participants (36.2%) citing the IR35 legislation being their “biggest fear” for 2023.

The reason for this could be linked to the fact the legislation was also flagged in the poll by 61.1% respondents as being the “biggest contributing factor” towards poor business performance in 2022.  

Other top concerns for the year ahead cited by respondents include the cost-of-living crisis (31.7%) and the government’s planned roll-out of tax hikes later this year (25.2%).

“There is a cost-of-living crisis happening, yet IR35 remains contractors’ greatest fear for the year ahead,” said Qdos CEO Seb Maley. “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.”

How the IR35 legislation, introduced at the turn of the millennium, works in both the public and private sector has been subject to reform in recent years, as part of a clampdown by HM Revenue & Customs (HMRC) on disguised employment.

“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”

The reforms, respectively introduced in April 2017 and April 2021 to the public and private sectors, saw contractors cede control for determining whether or not their end-user engagements were inside or outside IR35 to the clients that hired them.

This was on the back of claims by HMRC that allowing contractors to decide for themselves how they should be taxed was a system that had been used and abused by some individuals to artificially declare themselves as being outside IR35 to minimise the amount of employment taxes they were expected to pay.

In the lead-up to the public and private sector roll-out of the changes, Computer Weekly reported on numerous instances where end-user organisations responded to this shift in responsibility by issuing hiring bans against contractors or issuing blanket determinations that saw all of the contractors they engaged being reclassified as working inside IR35.

Since then, the picture seems to have changed, with the Qdos research suggesting that 80% of contractors were able to secure an outside IR35 contract in 2022, which represents a 15.4% increase on the previous year. However, nearly half (44.3%) described getting an outside IR35 contract as difficult to do.

Maley said there were positives to be drawn from this part of the research. “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,” he said.

“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.

“HMRC is making no secret about its increased IR35 compliance activity, either. 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,” he added.