Private sector companies “needlessly forcing” contractors to work on-payroll to ensure compliance with the IR35 tax reforms will see their hiring costs increase from 6 April 2025, contractor insurance firm Qdos has warned.
The company is speaking out following the publication of its annual contractor survey, which polled 925 contract workers on their views about the issues shaping the flexible labour market – including IR35.
According to the study, more than 70% of the contractors who responded have succeeded in securing an outside IR35 engagement during the course of 2024.
This figure is slightly down on previous years, with the 2023 and 2022 surveys showing that 75% and 80% contractors had, respectively, secured outside IR35 roles during the previous 12 months.
However, in the wake of the private sector reforms coming into force in April 2021 just 35% of respondents to the Qdos survey reported being engaged on an outside IR35 basis.
The reforms were first rolled out to the public sector in April 2017 and then extended to the private sector four years later, as part of a clampdown by HM Revenue and Customs (HMRC) against disguised employment.
The changes saw contractors cede control for determining for themselves if the work they do and how it is performed means they should be taxed in the same way as off-payroll workers (outside IR35) or salaried staff (inside IR35).
Responsibility for making these determinations shifted towards end-hirers, with many firms seeking to reduce the administrative burden the changes placed on them by introducing hiring policies that banned the use of outside IR35 contractors or prioritised the engagement of inside IR35 workers or umbrella company employees.
With the recent results highlighting an upward trend in outside IR35 engagements, Qdos claims the “tide is turning” with regard to how organisations are viewing outside IR35 contractors, which is no bad thing given that companies will soon have to pay more in hiring costs for on-payroll workers.
This is due to the government’s planned increase in employers’ national insurance (NI) on 6 April 2025, which will see businesses having to absorb higher costs associated with pay-as-you-earn (PAYE) tax contributions.
“By opting not to engage genuine contractors outside of IR35, businesses absorb PAYE taxes,” said Qdos.
“Ahead of the increase to employers’ NI on 6 April, firms needlessly forcing contractors to work on the payroll will see the cost of hiring increase even more.”
The survey respondents also acknowledged difficulties when securing outside IR35 engagements, with 59% experiencing challenges when trying to land off-payroll work, but the majority (61.5%) said they are confident they will be able to land more outside IR35 roles in future.
According to Qdos CEO Seb Maley, the results suggest that reports the reforms would lead to the demise of contracting in the UK were wide of the mark.
“After IR35 reform, the rhetoric was that contracting had died a death. And while the changes certainly create big challenges, both for contractors and businesses, this research suggests that the tide has turned, painting a different picture – one of cautious optimism about the road ahead,” he said.
“The good news is that most contractors are now able to secure roles outside IR35 and confidence seems to be returning to this vital sector of the workforce, after a turbulent few years. This can only be a positive thing, for business and the wider economy.”
He also claimed the results should spur organisations into rethinking their approach to IR35 compliance, because making it easier for contractors to engage with them on an outside IR35 basis could be a way of addressing talent shortages.
“There’s plenty of work to be done to minimise the ongoing impact of IR35 reform,” Maley added. “With employers’ NI rising imminently, the cost of forcing contractors to work on the payroll irrespective of their true IR35 status will become even more pronounced.”
