New research from IPSE suggests that the UK may be about to lose 50% of its freelance contractor workforce due to the new IR35 legislation.
This legislation follows on from the public sector changes, and places the responsibility of IR35 determination in the hands of the engaging company. Many engaging companies are choosing to label contractors as ‘inside IR35’ – just to be safe – effectively making them ‘employees’ without any employee rights.
As many as a quarter of engaging companies have told their contractors they had not made a decision on IR35 status just weeks before the new legislation was to come into effect. Here are some other worrying statistics from that research:
- 24% of engaging companies were planning to blanket-assess contractors as ‘inside IR35’
- 21% of engaging companies were switching to hiring contractors via an umbrella middle-man
- 8% said they planned to stop engaging contractors altogether
More PSCs To Close Than Expected
Back in spring 2020, when the IR35 private sector reform was due to come into force, we were just getting started on what turned out to be an unexpectedly long battle against the Covid-19 pandemic (ongoing). And so IR35 refor was pushed back a year to 2021.
While today the pandemic situation isn’t completely different to 12 months ago, there is a key difference in the commitment of our freelance workforce to their chosen sector. In early 2020 32% of contractors planned to leave for pastures new, while today 50% plan to call it a day!
Losing 32% of contractors was sure to put some pressure on, but 50% will make big waves. And for the 50% planning to remain, contracting may very well be a whole different game.
So why the sharp rise in contractors exiting the sector? The pandemic, and lack of support for the self employed, is likely to have had a hugely negative impact. While it’s understandable that paying one’s self in dividends is a more tax-efficient route, forcibly preventing the self employed from working certainly should require a greater degree of financial support.
Upon seeing the support offered to employed and self employed workers, many are understandably choosing to work where they will have more rights and more safety as a true employee.
What To Do If You Want To Close Your PSC
If you feel that leaving contracting behind is the best fit for you, Warr & Co can help you with this process – unfortunately it’s not altogether simple.
Read our blog on closing your PSC here. The good news is that the whole process can now be managed by Warr & Co under one roof, thanks to our new My-MVL service.
Contact our team to discuss your options and the process of closing your PSC.
What To Do If You Need To Hire Contractors
It’s not surprising that contractors are in high demand right now, and this situation is unlikely to get any better any time soon. There are a few ways you can secure the best talent for your business, though:
- Do not blanket-label contractors as ‘inside IR35’. Learn about IR35 and make careful and correct determinations – note: the Government’s CEST tool has been found to be quite unreliable! If in doubt speak to your contractors, they know all about IR35 and will be able to advise on working practices to ensure they are working outside IR35.
- Pay more. If you’re determining your contractors are inside IR35 you’re essentially saying they are an employee with a fixed / short work term, no benefits or pension, and it’s likely they have to provide their own equipment. You wouldn’t treat an employee this way, but if you have to determin the contractor is inside IR35 you may want to up your rates. This helps the contractor continue to provide their service while covering them financially for equipment, pension contributions, and security should they require time off or have a gap between contracts.
- Be a small company, as defined by the Companies Act. Small companies are not required to make the IR35 determination, so working with a small company has just become an attractive prospect for many contractors.
Companies can learn all they need to know about IR35 online, though various training courses are available too. Take a look at this webinar from the CiPP which provides a one hour session on IR35 for payroll and administrative professionals.