Four in 10 employers to cut contractors ahead of IR35 changes

Four in 10 businesses are planning to reduce contractor numbers ahead of the introduction of new off-payroll working rules, a new study has revealed.

The research, published by digital solutions provider Bedigital, comes shortly before the launch of new IR35 legislation on 06 April 2020.

The new rules are primarily aimed at contractors who work through a personal service company (PSC), but are working for a company as if they were an employee, known as ‘disguised employment’. This results in reduced tax contributions for both the worker and employer.

Under the new regime, however, all medium and large-sized private sector clients (employers) will be responsible for deciding a contractor’s employment status, as opposed to current rules, where workers decide their own employment status. Employers will also be liable for any unpaid tax should they incorrectly interpret a contractor’s employment status.

According to the study, response to the new legislation is widely negative, resulting in some employers stripping back their workforce.

Bedigital found that some 41 per cent of participants will be “reviewing their strategy” around engaging off-payroll workers from April 2020, while 11 per cent will actively decrease numbers of contractors – even if it results in the cancellation of projects.

Just 32 per cent of employers, meanwhile, agreed with the Government that changes to IR35 are a positive step forward in ensuring fair pay and taxation.

Commenting on the study, Richard Tyler, a spokesperson for Bedigital, said: “The results of this research clearly highlight the need for businesses to gain a much broader understanding of what the upcoming IR35 means, and how it will affect their company finances.

“Whilst the new off-payroll rules present a level of risk to businesses in the short-term, acquiring services using outcome-based SoW’s is a sensible way of reducing risk. However, if businesses do not adequately prepare for the changes, it may quickly create unexpected costs and issues.”

For help and advice complying with new IR35 rules, get in touch with our expert team.