Self-employed Individuals In The UK Believe IR35 Changes Should Be Delayed Amid Confusion About New Legislation

25th February 2021

* Approaching half (44%) of the UK's self-employed individuals believe changes to IR35 should be delayed, with 17% claiming it will reduce their income.

* Over a third (36%) of the self-employed are unaware of the incoming changes, and just 3% agree with the current timeline.

* Nearly three quarters (72%) of affected self-employed individuals have not yet prepared for the IR35 changes.

The majority of the UK's self-employed workforce is unprepared for the upcoming changes to off-payroll working rules - commonly known as IR35 - which come into law in April this year, according to new research from EY TaxChat

The research, based on a poll of over 500 self-employed workers, found that only 3% of self-employed individuals believe the forthcoming changes to the IR35 tax regime should go ahead in April, while 44% think the Government should delay the changes, and 72% of impacted contractors have not yet made any preparations ahead of the deadline.

From Tuesday 6th April 2021, businesses will determine the IR35 status of contractors working through a company. The reform is designed to tackle non-compliance with the off-payroll working rules, making all public sector and medium and large organisations in the private and third sectors responsible for determining the tax status of contractors and ensuring that the right employment taxes are paid. While the legislation does not impact all self-employed individuals, many are unsure of their status and how, or if, it might impact them.

Mark Lee, UK EY TaxChat Leader, said: "The implementation of the off-payroll working rules have been postponed once already, yet we are still in a position where many self-employed individuals appear to be in the dark. With the new rules coming into effect from early April, it is now a matter of urgency for those affected to understand how they may be impacted - not only form a tax perspective but in terms of earnings and cash flow."

Awareness of IR35 changes low amongst the UK self-employed

Many self-employed individuals are heading towards the 6th of April without the requisite knowledge of any potential impact the changes could have on their employment and earnings. Of those surveyed, more than a third (36%) said they had not heard of the changes, while 31% said they are aware but do not understand how they might impact them, and just 14% claimed to be up to date with how it might affect them. Just over three in ten (31%) respondents claim they will not be impacted at all.

Only 32% of contractors have taken action so far, with most of those speaking to a tax adviser (11%) or researching on the internet (11%), 4% having spoken to HMRC, a further 4% having spoken to their clients (4%), and just 2% speaking to their recruitment agency.

Impending deadline causing confusion, anxiety and stress amongst those impacted

When asked what emotion, if any, people associate with IR35, apathy lead the response (47%), followed by confusion (27%), anxiety (18%) and stress (18%). The cause of negative emotion is likely driven by the impact the changes will have on workers' incomes, with 17% saying it will decrease their income.

Mark Lee concludes: "With the pandemic already significantly affecting many self-employed individuals, this topic may be one that has been missed or pushed to the periphery. With large numbers believing it is likely to have a negative impact on their income, it is understandable that stress and anxiety are running high. Although there is so much else going on, we would encourage anyone uncertain of the changes to seek advice and to ensure they are ready come the 6th of April."

The Government made announcements about changes some time ago and updated thing on 7 February 2021.

HMRC announces change to the off-payroll working rules

As part of a review into changes to the operation of the off-payroll working rules (IR35), HMRC has made an announcement to give business more time to prepare.

Changes to the operation of the off-payroll working rules will only apply to payments made for services provided on or after 6 April 2020, HMRC has announced today ahead of the publication of the government's review.

The formal publication of a review into the implementation of changes to the off-payroll working rules is due to conclude in February.

A common issue raised over the course of the review has been businesses' concerns over what payments the rules apply to and from when. The government has listened and taken action early to give businesses certainty and more time to prepare to ensure the smooth and successful implementation of the reforms that come into force in April.

The rules, also known as IR35, will now apply only to payments made for services provided on or after 6 April 2020. Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out. It means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020, supporting businesses as they prepare.

This is set out in updated guidance in the Employment Status Manual.

The off-payroll working rules have been in place since 2000. They are designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as those who are employed directly.

The government is extending the 2017 reform of the operation of the rules in the public sector to all medium and large organisations in April 2020. This will shift responsibility for operating the rules to the organisation that engages the worker. This is how employment status for tax is decided for the vast majority of people, who do not work through their own company.

Further information

HMRC is making businesses aware of this announcement through updated guidance and in its ongoing education and support products

HMRC will also write to those that have already attended webinars or one-to-one engagements to explain the change

Public sector organisations already applying the off-payroll working rules will not be affected by this change

Contractors can find information about changes to the off-payroll working rules in HMRCs Contractor Factsheets