Home Business News 93% of contractors have considered using an umbrella company in 2021 to avoid IR35 impact

93% of contractors have considered using an umbrella company in 2021 to avoid IR35 impact

by LLB Finance Reporter
5th Jan 22 12:36 pm

The introduction of the new IR35 legislation in April 2021 was met with trepidation. Devised to combat tax avoidance in the contracting workforce, many viewed it as the death knell of the contracting industry.

But although 95% of contract workers have considered leaving contracting because of the impact of IR35, new research by Cool Company has shown that the impact of the legislation hasn’t been as devastating as many had feared – and that most contractors have found ways to mitigate the impact of the new rules, including working with umbrella companies.

In fact, in the last eight months, 93% of contractors have considered using an umbrella company specifically to avoid IR35, and more than half (53%) have done so. With the highest percentage being in the Property and Construction sectors, where 72% of contractors have begun working with umbrella companies. Primarily because it provides a red-tape-free solution to the increased administration now faced by contractors and the people they are working with.

For the same reasons, other contractors have moved their services to an overseas client base. 65% of UK contract workers have looked for more work from EU clients, with 83% of contractors from the Transport and Logistics sector making that move. While 52% have begun searching for clients from non-EU sources – those working within the legal sector accounted for 89% of these.

Despite the disruption that contractors have faced in 2021, two thirds (67%) still rated their overall experience of the IR35 changes as positive. With only 15% categorically saying that they have had a negative experience – 19% of these respondents were from a Marketing, PR, and Advertising background.

However, 6 in 10 (58%) contractors are still considering leaving this way of working, including 83% of respondents from the Property and Construction sectors. And 61% of contractors say that they have taken a permanent role in response to IR35 – 83% of these respondents were from the Performing Arts industry.

Cool Company’s Country Manager, Kris Simpson, comments: ‘Overall, there has been something of a mixed response to IR35. Contractors and businesses are both discovering that there are ways to simplify legislation compliance. For contractors this has meant changing their client base, accepting permanent work, or finding a compliant  umbrella company to work with.

‘For businesses, there are similar options. They can either juggle the additional administration and legalities of working with a contract workforce, face the same administrative issues of taking on permanent employees, or take on the services of an umbrella company.

‘The latter provides the simplest solution with the smallest amount of disruption. And it’s going to be very interesting to see how businesses and contractors adapt in 2022.’

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