If you’re a contractor (or an employer who uses contractors to fulfill certain roles within your company) you may well have become acquainted with the tax legislation known as IR35. IR35 was introduced as a means of stopping those who supply a service to a client through a limited company or other intermediary from dodging paying income tax and National Insurance contributions.
Such workers are billed as ‘disguised employees’ by the HRMC as without the intermediary they would be a bona fide employee. Of course as well as the worker saving money, this setup also works in a company’s favour as they do not need to contribute to National Insurance payments or offer any kind of benefits to the contractor. On the flip side, however, from the contractor’s point of view, they have no employee rights.
Under IR35, a contractor caught avoiding tax or NIC payments will then need to pay the same amount as though they were employed. What does this mean for the average contractor? It means they could be earning up to 25% less - and will now likely be paying thousands of pounds per annum in income tax and NIC payments.
So how is IR35 changing the rules when it comes to employment? For a start, data shows that fewer organisations are hiring contractors, instead opting to keep their talent in house by recruiting permanent staff instead. In fact contractor hires are down by a not insignificant 15%. Vacant positions being advertised paint a similar picture with vacancies for contractors having fallen by eight per cent.
It’s true that IR35 is creating uncertainty for many companies as they attempt to discern how they could be affected in terms of tax, NICs, and liability when employing a contractor. There are also concerns about how workable and accurate the government’s self-assessment Check Employment Status for Tax (CEST) tool is. But is IR35 purely to blame for this decline in contractor employment? Experts think not.
The double whammy of Brexit and a shortage of skills - particularly in the STEM (science, technology, engineering and maths) sectors - is still a concern for a large number of businesses. This shortage in talent due to the evolution of new technologies has only been compounded by Brexit as both Brits and Europeans leave the UK. It’s feasible this is also linked to the drop in contract hires as companies scramble to secure talent with permanent placements.
So which areas should a talented contractor look at if considering switching to permanent employment? Whether a coincidence or not, the accounting, finance and tax sectors are a good place to start if you are already working in these fields. And as technology increasingly becomes an even greater part of our lives, it’s no surprise that those working in IT, data, cybersecurity, AI and machine learning, compliance and business analytics are also currently highly sought after. In addition, Human Resources and legal data are two other areas worth exploring if you are a contractor already working in these spheres.
Data shows that fewer organisations are hiring contractors, instead opting to keep their talent in house by recruiting permanent staff instead.