Contractors endure more work for less pay, in 'IR35-covid harbinger'

Contractors are working for less but working more, in a possible harbinger of what’s to come from taxing IR35 changes hitting -- just as clients ambitiously ‘build back’ from covid-19.

In fact, while the ‘more for less’ trend hit PSCs in 2020’s fourth quarter, lower take-home pay amid bigger workloads from the covid recovery looks like a firm prospect from April 6th.

Unearthing the trend, IPSE would not be drawn yesterday on whether the downward pay pattern-cum-upward work stream will indeed continue beyond the IR35 reform start date.

'Contractors' confidence and prospects at risk'

But the contractor group did say that limited company workers’ still negative yet significantly improving confidence in their own ventures faces a derailing, if the reform goes ahead.

“If these changes come into effect…it’s likely they will seriously undermine both the confidence and prospects of UK contracting,” IPSE’s Andy Chamberlain told ContractorUK.

He caveated that such a ‘serious undermining’ thanks to the new off-payroll rules would only be the result if the rules came into force “on top of the financial damage of the pandemic”.

'IR35 reform for contractors is now worse than covid'

But in its survey, IPSE found that IR35 reform has now overtaken the 219-country-affecting virus as the biggest drag on the businesses of both professional and managerial contractors.

It is an unprecedented finding. “For the first time…[such] freelancers [who are] the two highest-skilled freelancer groups [have said this],” the Association of Independent Professionals and the Self-Employed said.

“[In particular, both freelancer groups] cited the government’s tax policy as having a worse negative impact on their business than the pandemic.”

Yet the average contractor emerged as already working about 24 hours more a week than in July-September, even though their pay rate is down -- on an average by £16 a day.

Managerial contractors are the one exception, with covid restrictions the likely culprit of both their work and their pay shrinking (down to £526, from £555 previously).

'Concerning'

IPSE’s Chloé Jepps calls the dual decrease “concerning,” as unlike others who cut rates on lockdown to “competitively scoop up” work, contractor managers cut too, only to no effect.

The group’s research head, she said: “While others cut their day rates to get as much work as possible while the going was good, for managerial freelancers, the going never got good.”

Unhelpfully, costs aren’t heading in the right direction either – for all contractors (67% foresee an increase), but for managerial contractors especially, (73% foresee an increase).   

Worse still, the surveyed contractors might not have the means to meet the extra inputs, as they expect an average decrease in day rates of 9.1% over the next 12 months.

Confidence in their PSCs somehow lifted however, as their three-month and 12-month negative outlooks brightened, to -11.9 (the highest since Q2 2019) and -15.6 (up from -30.5).  

'Crucial for government to understand the harm'

And although IPSE believes Budget 2021 helped financially, at least for part of the independent workforce, the chancellor left vast swathes of it facing the elephant in the room.

“There were certainly some positives in the Budget for segments of the self-employed sector – particularly the inclusion of the newly self-employed in SEISS, [but] one of the most concerning things is what was not said -- IR35,” Mr Chamberlain said last night.

“In the Budget, the government did not heed calls from IPSE and across the sector to delay and rethink the changes to IR35 -- it seems determined to push them through.”

The IPSE policy director also told ContractorUK: “[So] right now, we are urging our members and other contractors to write to their MPs [to] underscore the damage these changes will do, and once more press for a delay and rethink.

“Whether this secures a last-minute delay or not, what is crucial here is to ensure HMRC and the government understand the harm these changes will do. It’s essential they know that all is not well with the contracting sector – and that what is needed, as we are campaigning for, is long-term structural reform.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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