IR35 rules affect available work for contractors

Half of UK contractors have noted a drop in the number of available contracts in the 12 months since the new IR35 regulations governing employment status for tax purposes came into effect, according to a new study.  It surveyed more than 500 contractors, business leaders and hiring managers on how they were handling the IR35 in the public sector, their experiences to date and the impact they believe the regulations might have if introduced to the private sector.

43% per cent of contractors said they have had to pay more tax in the past year. Nearly half said they now only seek contract opportunities in the private sector. Additionally, 42% of contractors reported that they increased their rates to balance the cost of ‘being caught within IR35’, compared to 16% who said the same last year.

A majority of those surveyed felt that plans to extend the IR35 into the private sector would have a negative impact on the economy as well as on levels of productivity and innovation.

The IR35 rules were first introduced in 1999. Under changes to the IR35 tax regulations that came into effect last year, organisations in the public sector that took on workers through a personal service company (PSC) or other intermediary service became responsible for deducting the proper amount of tax and national insurance contributions (NICs) from payments – where the worker would have been regarded as an employee, had they provided services directly.  Under the old regulations, the contractor or worker had to determine if they fell under the IR35, and research estimated that only one in 10 people were using the IR35 correctly.

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