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New research highlights confusion amongst self-employed regarding Off-Payroll reforms

One in five UK sole traders are needlessly making plans to address the impact of proposed Off-Payroll reforms despite the legislation not affecting them, new research has revealed.

According to a collaborative survey conducted by professional membership body the Freelancer & Contractor Services Association (FCSA) and cloud accounting software provider FreeAgent, one in five (18%) of sole traders say that they are making preparations for when Off-Payroll reforms hit the private sector in April 2020 – even though the proposed changes are not intended to impact their type of businesses.

The survey, which comes just after the completion of a consultation into Off-Payroll legislation in the private sector, also found that 13% of limited company contractors said they will stop contracting as a direct result of the planned reforms.  This would be equivalent to losing 78,000 people from the contracting workforce, based on FCSA estimates of there being 600k personal service companies in the UK.

The FCSA believes that the research should be a stark warning to the Government that Off Payroll reforms will put medium and large-sized businesses under continued pressure – and that the UK economy cannot withstand another hit in an already tight labour market. It highlights the CIPD’s latest Labour Market Outlook as proof that firms are already struggling to fill their staff vacancies, and with a depleted contractor workforce able to support businesses in the short-term, these issues are set to continue as firms will not be able to withstand the loss of essential freelance skills and talent that they have been relying on to date.

The FCSA and FreeAgent research was conducted among 500 self-employed freelancers and contractors and other key findings revealed:

  • 70% of limited company contractors believe the proposals are unfair on the self-employed,
  • 76% believe that all (68%) or some (8%) employment rights should be attached to an inside IR35 determination
  • 36% will only work on an ‘outside IR35 contract’
  • 13% would leave contracting (early retirement, seek a permanent role or work overseas) if the reforms come into play. 

Commenting on the research, Julia Kermode, chief executive of FCSA said: “The fact that our research points to 18% of sole-traders who are making plans for the 2020 roll out of the reforms when they do not apply to them speaks volumes about the lack of clarity regarding the reforms.  We made HMRC and HMT aware of the issue in our last consultation response which presented evidence that sole-traders were included in their stated “58,000 average monthly worker instances” captured by the public sector reforms.  By definition, sole traders are outside the scope of IR35 legislation and therefore should not have been affected by the public sector reform, so their inclusion is a very serious error. 

Ed Molyneux, CEO of FreeAgent, added: “Freelancers and contractors are the driving force behind the UK economy and UK plc and with these planned reforms the Government is planning on penalising them and many of the companies they work with.  Time and again policy makers continue to ignore the fact that the self-employed have none of the employment rights or the security that comes with permanent employment, and there must be some recognition for that.  Currently, they are intent on crippling what is a very important and growing part of the UK economy.

“The complexity, unfairness and administrative burdens that the proposals will bring to supply chains are damaging to the UK economy, damaging to the flexible labour market, damaging to the recruitment sector and damaging to the workers it will impact.   This latest research corroborates that.  What’s more, our economy relies on the fact that companies can turn to talent on tap on an ‘as needs’ basis and with 13% of contractors considering turning their backs on this way of working under the new rules and with 36% stating they would only work on an ‘outside IR35’ contract it is little wonder that 70% believe the proposals are unfair.”

Kermode concluded: “Our research outlines the devastating impact of the proposals on contractors and UK businesses that are struggling to fill their vacancies, and the collateral damage to sole traders.  Put simply, the evidence reinforces our view that the Government should not press ahead with its proposals and a delay is essential.”