Anthony Morrow talks about pensions for self-employed
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IR35 legislation has created uncertainty within the self-employed sector and according to new research from Cool Company, more difficulties may be on the horizon. Many freelancers expect additional changes to be made and some experts believe these fears are warranted.
More uncertainty due
Recently, Cool Company surveyed 500 UK contractors who shared they are concerned more IR35 changes could be on the horizon. Of those surveyed, 74 percent said they believed the current rules will be revised once more. With 44 percent of those within the education sector, and 40 percent within HR and recruitment strongly believing there is cause for concern.
Cool Company said the reasons for the unease surrounding potential legislation changes aren’t just due to the potential complexities and confusion that could arise, but also the real cost implications.
These complexities are illustrated by the fact that 86 percent of respondents sought specialist advice to prepare for IR35, spending an average of £764 on this advice. Given that only 43 percent of people agree they understand the current IR35 legislation, it would seem any legislation changes are likely to incur further costs.
Of the 14 percent who feel they secured less work since the introduction of IR35, more than half (58 percent) said that they only seek to secure work with clients deemed outside of IR35 legislation. And 54 percent said clients were unwilling to engage with a complex assessment system.
However, it should be noted not all of the consequences of IR35 have been negative. Cool Company noted there has been a “general consensus” that the new legislation makes it easier for contractors to find work. More than half (55 percent) of respondents said that they feel they can secure slightly more work since the introduction of IR35, while 23 percent feel they can secure a lot more work.
Kris Simpson, Cool Company’s Head of Business, commented: “By and large, IR35 is being viewed in a positive light by the contract workforce. Many have discovered the benefits of working with umbrella companies, and the majority have found it easier to secure work. But the prospect of legislation change is causing anxiety.
“Any change in working practices carries the potential to disrupt workflow and incur costs. With many professionals working to a competitive margin, any additional costs could be damaging for many.”
While Mr Simpson welcomed the rise of contractors working with umbrella companies, others have warned this poses a risk to workers as umbrella companies have been criticised for unethical and even illegal behaviours in the past.
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When IR35 was originally introduced in 2000, umbrella companies emerged to provide an often controversial solution to the tax issues. Umbrella companies tend to be set up as a standard limited company which are then operated by a third party.
This third party acts as an “employer” on behalf of its contractor employees which provides costs and admin advantages to businesses.
Recent research on IR35 by the Association of Independent Professionals and the Self-Employed (IPSE) showed over a third of contractors (35 percent) have left self-employment since the changes to IR35, either moving into permanent employment, retiring, working overseas or simply not working.
The research also found that of those who remain, more than a third again (34 percent) are now working through unregulated umbrella companies and another third (36 percent) are working through engagements deemed “inside IR35”.
Crawford Temple, the CEO of Professional Passport, expressed worry on this data.
“IPSE has learned that 34 percent of contractors are working through unregulated umbrella firms,” he said.
“I would like to point out that there is no regulation in this industry and this is an ongoing debate.
“My message to workers is that if they are offered something that is too good to be true then it is probably a disguised remuneration scheme that will set them up for financial difficulties in the future. HMRC already holds all the information it needs to stamp out disguised remuneration schemes and rid the industry of criminal activity but is not acting on it. As a result, the lack of inactivity has enabled more and more schemes to be set up and more and more contractors duped into taking on significant personal financial risk as a result.
“It is also disappointing to learn that 38 percent of contractors said that their clients had not issued them with a Status Determination Statement. It is now a legal requirement for contractors to be issued with SDS’s and those clients who do not provide one are not meeting their legal obligations and could be at severe risk under the legislation of facing significant debts. It is the perfect storm waiting to happen.”
IPSE said working inside IR35 “not only” leaves contractors essentially in no-rights employment; it also has significant financial consequences: four out of five contractors (80 percent) working inside IR35 said they had seen a drop in their quarterly earnings – by an average of 30 percent. A quarter said their income had dropped by over 40 percent.
Many contractors also appeared to be fed up with the logistical side of dealing with umbrella companies. One in four (23 percent) of all contractors working through umbrella companies say they are dissatisfied with their umbrella company, compared to 46 percent who are satisfied. One key area of concern is business expenses, which most contractors now cannot claim from their umbrella company: 55 percent were dissatisfied with this.
Andy Chamberlain, Director of Policy at IPSE, said: “Contractors are the most productive part of the crucial self-employed sector, which overall contributes more than £300billion to the UK economy every year. Not only that: they are absolutely vital for economic recovery, providing invaluable flexible skills to businesses getting back on their feet and adapting. But just when this sector is needed most, it has been hamstrung by the changes to IR35.
“This research shows the devastating impact the changes to IR35 have had on contractors, needlessly compounding the financial damage of the pandemic and the unnecessary gaps in support. Now, just when contractors are needed most – amid mounting labour shortages across the UK and particularly in haulage – government decisions have driven out a third of the sector.
“Not only have the changes to IR35 driven large parts of the contracting sector out of self-employment: they have made things needlessly and enormously more complex for those who remain. Contractors now find themselves with myriad different and complex ways of working – each with its own pitfalls. They are now divided between those still managing to work outside IR35, those working through unregulated – and sometimes unscrupulous – umbrella companies, those working inside IR35 for less pay and with no rights, and others now on client or agency payrolls.”
Mr Chamberlain concluded by urging the Government to “clear up” the IR35 mess. IPSE notes it was “keen” to work with the state on this but ” it must take it seriously.”
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