UK highly skilled contractors out of work due to IR35. But not for long if the Americans have their way
An IPSE survey reveals a troubling trend: highly skilled UK freelancers are out of work due to IR35. The situation looks to have created the ideal environment for American companies to recruit British talent from across the Atlantic. Will politicians wake up to the trend or try to spin it?
A recent survey by IPSE, the Association of Independent Professionals and the Self-Employed, paints a concerning picture for freelancers in the UK. The controversial IR35 tax reforms seem to be taking a toll on work opportunities, with a significant number of skilled contractors left on the sidelines.
Clients are hesitant to work with freelancers due to the fear of hassle from HMRC, especially after witnessing HMRC’s aggressive pursuit of high-profile cases. This is a negative legacy for a Chancellor who claims to support businesses.
Andy Chamberlain, Policy Director at IPSE
Key findings from the IPSE survey:
1 in 10 freelancers out of work: A worrying 21% of the surveyed highly skilled contractors are currently unemployed. Alarmingly, half of them attribute this directly to the impact of IR35 tax rule changes.
Freelancers rejecting risky “inside IR35” contracts: The survey reveals that over half (55%) of contractors have turned down work in the past year because the client deemed it to be “inside IR35.” This suggests a reluctance to work under these tax classifications.
Looking abroad for opportunities: Faced with these challenges, a significant portion (24%) of contractors are considering seeking contracts overseas this year, effectively escaping the reach of IR35 rules.
“It’s troubling that even after three years, the off-payroll working (IR35) rules continue to keep many highly skilled individuals out of work,” says Andy Chamberlain, Policy Director at IPSE. “This is especially concerning when economic inactivity is a major concern for the government.”
Chamberlain highlights the trend of freelancers prioritising clients who value their freelance status and are comfortable working outside IR35. He emphasises that the blame doesn’t lie solely with clients, but rather with the “culture of fear” created by the IR35 rules.
“Clients are hesitant to work with freelancers due to the fear of hassle from HMRC, especially after witnessing HMRC’s aggressive pursuit of high-profile cases,” he explains. “This is a negative legacy for a Chancellor who claims to support businesses.”
Chamberlain concludes with a call to action: “If the government is serious about reducing inactivity and boosting the economy, they need to urgently address the real-world impacts of these reforms by working directly with those affected.”
IR35 is “anti-growth”
Dave Chaplin, CEO of IR35 compliance firm IR35 Shield hints that tax reform is getting in the way of economic growth. “When tax becomes too taxing, people stop working – this is hardly surprising. The sad thing is there will be thousands of highly experienced people who would work but are choosing not to because they cannot be bothered to entertain the friction caused by IR35.”
He continues, “IR35 is anti-business and anti-growth, and when tax policies result in people choosing not to work, Parliament needs to take back control of tax policy, rather than just waiving through damaging policies like the IR35 reforms.
“HMRC is laughably using the tired old spin rhetoric of ‘there is no evidence to suggest’, which simply points to the fact their own research failed to survey contractors on the point.”
Americans see the UK as an offshore talent pool
Remember when India was the number one offshore jobs market for highly skilled contractors? Well according to Wall Street Journal reporter Chelsey Dulaney it looks like the UK could join India as an offshore jobs market for highly skilled talent on the cheap. Cheap for American standards that is.
Dulaney relays in her LinkedIn post and article that the vast gap between US and UK salaries, tax incentives and a weak currency has helped the UK emerge as a “hotspot for high-skilled offshoring in the age of remote work.”
She says in her post,
Along with film production, tech offers one of the starkest examples of the trend. Danny Lopez of cybersecurity software firm Glasswall told me that software engineers in the U.S. can earn 2 to 3x more than U.K. counterparts. Nearly all of his software engineers are based in the U.K. even though 90% of the company’s revenue comes from the U.S.
For the stagnating post-Brexit U.K. economy, the rise in demand for its services is a rare bright spot.
While some politicians might frame this economic development as a positive, they’d face some tough questions: why are highly skilled and adaptable workers forced to contribute to foreign firms rather than domestic ones? Why is British talent fueling the growth of US companies instead of British businesses?
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absolutely hilarious. the mental gymnastics to say that the abuse of loopholes should be encouraged and that to try to close the attempts of the highest paid to avoid paying their fair share of tax is shameful
All of this IR35 stuff just goes away with one simple tax change: Make tax rates for dividends the same as for PAYE. But of course, the MPs in parliament who get most of their income from investments, will never make that change. Remember that when you talk about contractors paying their fair share. This whole IR35 thing is really about the well-to-do preserving a privilege they have reserved for themselves. I’m not claiming that any of it is fair. And the next time they show you a shiny bauble intended to keep your attention, keep this thread in mind.
This is not right dividends are taken for may reason including entrepreneur putting money into businesses, Stocks and shares are alos paid has dividend.
The original idea behind IR35 was correct to stop a permanent person becoming a contractor overnight and doing the same job. That needs to be inplace. Its the changes that i warned about in 2016 that have caused the problem.
The fear factor is there, all companies have to do i go to IR35 sheild or QDos or Knightsbridge and get the SDS done but this i not taking place on 75% of IT contracts. You will not i have not put CEST 1) it has not been updated for 5 years which includes a lot of cases lost by the HMRC 2) They have broken the standards Committee code of practice by withdrwing it from open source.
Until HMRC are regulated for the abmisall way they hound tax payers with tax payers money nothing will get done about the IR35 or Loan charge
The HMRC have created a brain drain already with people work worldwide
The HMRC have created a vacum for people who need to do contracts away from where they live because its contract block spot.
Tax Payer – if you set up as a business one should pay the correct business taxes. ‘Disguised employment’ should be tackled, yes. However, a broad blanket, stiffling all small business does not lead to ‘everyone paying their fair share of taxes’. It has just lead to another merry-go-round of unregulated intermediaries between the client and the tradesman. It certainly doesn’t lead to everyone enjoying their ‘fair share of employment benefits’!
Increasingly, there are questions being asked about why should one tackle ‘disguised employment’. If one wants to operate as a company, why shouldn’t one? This issue isn’t about principle – it’s about lost National Insurance payments…….slowly….very slowly no doubt, these are disappearing and the amount of tax deducted from wages will be one unified amount, and current Employer’s NI can be eliminated and incorporated into Corporation Tax, or increased minimum Employer’s Pension Contributions etc… – no doubt that will be of similar sum to the current PAYE and NI combined.
At which point, the only thing HMRC are missing out on is the difference in tax rates between PAYE and dividends.
Robin’s point is well said. The establishment are comfortable with tax focus being on ‘income’ of workers and very small businesses. The wealthy derive most of their riches from their invetsments/assets…..not their payed income or professional fees.
It’s that accumulated wealth that should be drawing the tax payer’s (Tax Payer’s) attention. I see IR35 as a ‘barrier-to-entry’, set against the Demos, of operating as a company and enjoying those favourable tax arragements on assets/investments/dividends…..insulating the elite (those descendants of William the Conqueror and his 200 or so baron knights 🙂 ) from competion from the hoi polloi
I have 20 years experience, and have never been out of work until completing a contract in January. I have experience, two degrees, CISSP and CCSP, and yet I have been singing on for Job Seekers Allowance because this government and HMRC have destroyed the cybersecurity contracting market. I would work for anyone at any price but there are no jobs.
Well said and I am in the exact same position
Not sure this will make a difference to tax status unless a company sponsors a US visa with view to emigrating from the UK, as there are intentions (vaguely defined as expected) to check residency status and family ties. So not only could/would UK tax be due on income earned in the US but the worker will also be a resident alien for US tax purposes – filing IRS paperwork and being subject to unpredictable and retrospective UK IR35 rules/laws sounds like juggling hand grenades. But appreciate the point about loss of tech resource to the US.
I have worked through intermediaries and I can confirm I have had an amazing contract outside IR35 doing work for a company based in the United States, as the company based in the US was the End-client. It was for almost a year, great day rate and at no time I acted or I was seen/treated as an employee of such company.
Hello ‘ChB Says’ – could you tell us more? Who was the intermediary? Could you perhaps write a pice for the FLI?
Arbitrage applies to job markets, just as it does to stock prices. In the US, IT salaries are much much higher. IT personnel pay the full wack of taxes on that. The balance between working here and there was balanced by the contractor arrangement here. Now that is swiftly closing down, and the IT contractors have a choice; either retire (why work if you get so little out of it compared to before, and they have the assets to do so), work overseas, or have to remain for other reasons, such as family etc. I used to work in London, and my rate of pay would be 50% higher at this point if I were still there. In absolute GDP terms, I am contributing less today (adjusting for inflation). All the contractors I work with are working in a similar arrangement. Travelling into London is a rare circumstance these days. Unfortunately the IR35 rules came into full affect during COVID (since it was suspended due to Brexit) and Brexit, so trying to establish how much of our economic malaise is down to the IR35 changes is hard to isolate.
This is not right dividends are taken for may reason including entrepreneur putting money into businesses, Stocks and shares are alos paid has dividend.
The original idea behind IR35 was correct to stop a permanent person becoming a contractor overnight and doing the same job. That needs to be inplace. Its the changes that i warned about in 2016 that have caused the problem.
The fear factor is there, all companies have to do i go to IR35 sheild or QDos or Knightsbridge and get the SDS done but this i not taking place on 75% of IT contracts. You will not i have not put CEST 1) it has not been updated for 5 years which includes a lot of cases lost by the HMRC 2) They have broken the standards Committee code of practice by withdrwing it from open source.
Until HMRC are regulated for the abmisall way they hound tax payers with tax payers money nothing will get done about the IR35 or Loan charge
The HMRC have created a brain drain already with people work worldwide
The HMRC have created a vacum for people who need to do contracts away from where they live because its contract block spot.
I’ve almost been destroyed by the IR35 changes but ended up finding an umbrella contract – probably a Tory business owner skimming off the top of my day rate.
When this contract finishes and the housing market picks up I’m selling and leaving the UK.
IR35 and the subsequent state of the market and the taxes I now handover (while taking all the risks and disadvantages) has put me into a mindset state of “why bother – I’m out”. I’m 54, good at what I do, but now thinking when my current contract ends, I’ll downsize, jack IT in and get a little part time job doing any old thing, with zero stress. There’s just little point to contracting now or the “hell” of such work for a typical PAYE permanent salary.
Various new reports have trumpeted the ‘trade deals’ signed with certain US States…..how can we get access to sell ‘professional services’ to end clients in those States?
Can FLI do a piece on that?