The impact of changes to IR35 tax has been less impactful than first feared, according to new research from HR automation business Moonworkers, with more than two-thirds of SMEs planning to hire more contractors this tax year.
69% of respondents to the survey, which asked 200 HR professionals from several sectors across the UK who use Moonworkers’ cloud-based HR platform about the impact of changes to the off payroll working rules, said they still plan to hire contractors. 62% said the new regulation has no bearing on their decision to hire contractors.
Effective 6 April 2021, all public sector organisations and medium or large-sized private sector businesses have been responsible for deciding a workers’ employment status when engaging individuals through personal service companies or other intermediaries.
The changes were introduced in the public sector in 2017 and were meant to come into force in the private sector in April 2020 but were pushed back a year due to the financial impact of the coronavirus pandemic.
It had been predicted contractors could stand to lose up to 20% of their income as a result of the changes, with the additional administrative burden of IR35 PAYE compliance having the potential to discourage the use of contractors.
In fact, 62% of respondents to the survey said that IR35 would not impact their business as much as they thought that it would two years ago. Despite this, almost half (48%) of respondents believe the government should have deferred the changes by a further year, with COVID-19 restrictions beginning to ease and the UK economy beginning its journey to recovery.
Nicolas, Founder & CEO of Moonworkers, said: “The change to IR35 tax regulations places significant administrative burden on the hundreds of thousands of businesses who rely on contractors, and left contractors fearful of reduced income. Very few felt prepared for the changes, particularly as we continue to navigate a global pandemic – but it’s clear from our research that some companies are suffering far less than was predicted.
“Contractors have been some of the worst hit during the pandemic. However, one of the positives to emerge from COVID-19 is a new way of working, with many businesses now seeing potential in the continued use of contractors despite the changes to IR35. Businesses should now be looking to invest in a simple solution for managing IR35 compliance and future changes to regulation.”