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Dip in company formations due to IR35 reform?

Dip in company formations due to IR35 reform?

Might the IR35 reform in the public sector, which has been so negatively received by the contractor community at large, be putting potential contractors off making the leap?

Well, that’s what recently released data from Companies House suggests. Data examined by The Centre for Entrepreneurs found a 10% drop in company formations in 2017 compared to 2016.

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A key factor in this decline, the Centre for Entrepreneurs believes, is due to a reluctance to work as a contractor in the public sector due the reforms moving forwards. These reforms mean that the public sector organisation is now responsible for determining IR35 status.

An example from the data shows that in 2016, 7,475 new businesses were registered to an accounting firm in Wiltshire. That firm provides services to contractors, such as payment solutions, but the drop is huge.

IR35 reform

After the IR35 reforms hit in April 2017 however, that number dropped in a dramatic fashion to just over 450.  There are many reasons as to why this could be, but is it a coincidence?  Some of this is down to a new way of calculating figures. Others deem the drop to be nothing more than would be expected.

The number of registered businesses has risen steadily each year in recent times, and that couldn’t continue forever. However, the introduction of IR35 reform and the drop are more than likely linked

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“With business registrations increasing for nearly a decade it is not surprising to see the record streak come to an end,” said Matt Smith, director of the Centre for Entrepreneurs. “While the tax clampdown is responsible for most of the drop, there is evidence that formations have fallen more than expected. To boost start-up figures, the government must return to championing entrepreneurship and supporting entrepreneurs, as it did so well under David Cameron.”

Overall though 2018 does still promise to be a good year for contracting, with a lot in store.