IR35 tax changes will be introduced in the coming days which will, in short, mean off-payroll workers will be treated as full-time employees. This will mean that companies will be responsible for setting the tax status of contractors they hire and many fear these changes will negatively impact contractors and self-employed freelancers.
Other commentators have also warned this potential system could add further strain to freelancers, many of whom are already planning to give up on contracting all together.
Research from the Association of Independent Professionals and the Self-Employed highlighted that half of UK freelancers will stop contracting due to the upcoming IR35 tax change.
Worryingly, additional insight from Markel Direct revealed many affected workers are ill-prepared for the quickly approaching changes.
According to Markel Direct’s findings the “most burning questions on every contractors mind” according to search engine data includes:
- How to prepare?
- What’s changing?
- Will IR35 be scrapped?
However, interest in IR35 itself has “plummeted” since last year’s delay, with Markel Direct’s research showing that the search volume for IR35 dropped by 71 percent since last year’s announcement that the tax change would be delayed due to the pandemic.
This lack of urgency can be reflected in Ryan’s case study, a building contractor from London, who admitted to not giving the upcoming tax change “much thought” since the Chancellor’s delay announcement made in 2020.
Ryan detailed: “When the delay happened, it was such a relief because the situation around the pandemic was so uncertain, and they’d obviously assumed that a year later things would be back to normal.
“It isn’t, and there’s still a lot for me to figure out as a contractor and dealing with the fallout of the pandemic, from self-employment tax to operating in lockdown. IR35 just isn’t on my list of priorities right now.”
Paul continued: “As the April date nears, underprepared contractors are even searching for ways to ask if IR35 can be avoided. However, according to Markel experts there’s currently no way to legally avoid IR35 if you are deemed liable.
“Affected contractors also showed their nervousness with the impact the tax change could bring, as they searched to find out ‘how much worse off’ they would be.
“According to Markel, calculating how much worse off you will be if you are deemed to be ‘inside’ IR35 depends on your individual circumstances.
“As an example, a contractor earning £75,000 a year would expect to take home £52,546.32 in retained income if they are ‘outside’ IR35. If they are caught ‘inside’ IR35, the contractor would take home £45,563.95 – so would be almost £7,000 worse off.
“Additionally, if your engagement is ‘inside’, any subsistence costs will have to come out of your take home pay, which means that you could be considerably worse off than the £7,000.
“Working so closely with contractors, we’re completely aware of the struggles they have faced over the course of the pandemic.
“We understand the upcoming tax change might be a worrying time for many as they see their finances change after an unprecedented year. It wasn’t surprising to see a surge in queries for those who were querying if the tax change can be avoided, but hopefully the information we’ve provided will help contractors prepare.
“A multitude of industries are going to be affected by this, which is why we wanted to answer the most popular questions about the tax change ahead of April 6.”
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