Tax reform hits contractors in hip pocket, says survey

THE new IR35 reform coming into force across the UK could cause contractors to miss out on take-home pay, a study claims.

Research by SME insurer Simply Business revealed that a third of contractors expect to miss out on more than £20,000 in take-home pay. One in five expects the loss to be between £10,000 and £20,000.

The private sector reform was due to be introduced earlier, but delayed due to the pandemic.

Kevin Neal and Bill Cunnew are two of the thousands of contractors likely to be affected. IT contractor Neal says he has lost an eighth of his pay to tax, fees and pension. “I feel persecuted for doing nothing more than trying to earn a living,” he said. “I pay my taxes, I always have. The Inland Revenue should focus on those who do not instead of making sweeping changes that affect everyone.”

Cunnew, also an IT contractor, said he had been earning good rates. “After one year out of work, I was forced to take a permanent job on a lot less money,” he said. His tax has risen by  25 percent.

The difference between working outside or inside IR35 can be huge. Those working inside the constraints of the legislation or via PAYE are sometimes taking home up to 25 percent less after tax.

The change affects thousands of businesses who engage contract workers. The onus is now on private businesses of a certain size to decide whether service providers working via an intermediary are deemed “employees” for tax purposes.

With the reforms that came in this month, 52 percent said they were unprepared. Of those, 29 percent have reviewed their existing contracts to ensure the correct clauses are in place.

Alan Thomas, UK CEO at Simply Business, said contractors were a vital part of the economy. “With one in three now expecting to miss out on over £20,000, the impact of the new rules will be felt up and down the country,” he said.