041 The Impact of IR35 Reform On Contractors

We're completing our trilogy focussing on IR35 reforms by chatting to a contractor about how the new legislation has affected him and his business. The reforms came into effect in the private sector in April 2020, and for our interviewee the impact has been more significant than COVID. Shockingly, he lost approximately £80k due to the legislation change! These are just a few of our key takeaways:

• IR35 reforms increased complexity for businesses, leading to a risk averse approach with many banning personal service companies;
• Contractors now operating 'inside IR35' have increased their rates to maintain their earnings;
• Increasing costs for UK contractors is driving offshore resourcing as a cheaper option;
• Entrepreneurism is being stifled, 'inside IR35' means paying people personally therefore there's no money going into the business to nurture it.

Our interviewee's work lends itself to creating a schedule of services and deliverables, but he had to bill on a time and materials basis in order to win work. The IR35 reforms are now effectively penalising him for operating in a way that he tailored to meet client requirements. Although he was operating legitimately, the IR35 reforms meant that our interviewee was blocked from accessing a large proportion of his previous target market. Despite suffering a financial loss of up to £80k, our interviewee has some sympathy with his clients. He says that Brexit, the pandemic and economic issues are creating enough volatility for businesses and they don’t need complex IR35 legislation to get to grips with on top of that.