A fifth of contractors now looking for permanent roles with HMRC set to tighten tax rules

19% of contractors are now looking for permanent roles with less than six weeks to go until HMRC tightens tax rules on contractors, according to new research by Interim Partners, part of New Street Group – a  leadership and people solutions consultancy.

New rules coming in on April 6 will encourage businesses to reclassify their contractors as employees – suddenly increasing the tax these contractors have to pay. Businesses are doing this because, under the changes to IR35, they would have to pay any tax underpaid by their contractors – a risk businesses want to avoid.

Interim Partners says that many senior professionals are now questioning whether contracting work now makes financial sense, and are instead looking for permanent positions.

The consulting firm says that too many contractors taking up permanent roles would reduce labour market flexibility and access to talent for businesses, not just among contractors but also among more skilled and experienced interim executives. The consulting firm adds that taking contractors off the market also slows the transfer of skills within businesses.

Iain Pennell, Director at New Street Group, says:

“The impact of the new IR35 rules is going to be felt by a lot of contractors. Many are already preparing for that by looking for permanent roles instead.”

58% of contractors have still had no communication from clients over IR35 changes

58% of contractors surveyed also say they have not yet received any communications from their client businesses over how they will respond to the imminent changes in the IR35 rules.

With little over a month to go until the changes are implemented, Interim Partners says that businesses need to explain to contractors how they will deal with IR35 or risk them working elsewhere.

Says, Iain Pennell:

“IR35 rules are notoriously complicated and subjective, and the penalties involved will be very serious in a year’s time. There is still a lot of confusion among both individuals and businesses over how the system will work.”

According to Interim Partners’ research, 29% of contractors are still unsure whether the changes to the IR35 rules will apply to them or not. While penalties for errors have been suspended for the first year of the new rules, fines of up to 100% of unpaid tax can be applied after that.

40% of contractors expect take-home pay to fall when tax rules tighten

Interim Partners’ research also shows that 40% of contractors expect their take-home pay to fall when the IR35 rules change in April. This figure rises to 65% of contractors in the financial services industry.

”It’s clear why so many contractors are looking towards permanent roles – they know that HMRC will be taking a much bigger slice of their income from April,” says Pennell.

“The way this change is being implemented by the Government means that a lot of businesses are being forced to take the low-risk approach on how they classify their contractors for tax purposes. Unfortunately for contractors, the low-risk approach is also the high-tax approach.”

Other findings from Interim Partners’ research conducted in Dec 2019 to Feb 2020 include:

• 61% of businesses think the new IR35 rules will have a large impact, and are concerned that they will not have enough resource
• 61% of businesses are also concerned about attracting talent for interim roles after April
• 23% of businesses do not know the difference between a role ‘inside’ the IR35 rules, and a role outside them