Written by Anthony Sherick, MD of ContractorUK
Despite the significant growth of the UK tech economy, the demand for tech skills and the growing demand for flexible working, currently there are three looming clouds hanging over the contracting market; Brexit, IR35 reform in the private sector and the 2019 Loan Charge. All three have the potential to impact UK contractors.
There have long been debates on contracting versus permanent employment and the pros and cons continue to be weighed as the contracting market fluctuates in its fortunes. The lack of stability and security that comes with contracting is often compared to the highly-attractive freedom, flexibility and chance to earn a higher income. Here we explore the state of the contracting market and what UK contractors need to be aware of in the coming months.
Brexit has the potential to affect hundreds of industries including the contracting market. Uncertainty surrounding Brexit has slowed general investment and thus recruitment confidence. A recent report from Beaming found that 31 percent of companies in the UK have put IT and technology projects worth more than £27 billion on hold due to Brexit uncertainty. However, opportunities for contractors may increase as EU worker migration into the UK slows down. There is also an increasing skills shortage and the UK is struggling to plug these gaps quickly, so if this trend continues, contractors will see positive rises in advertised rates for many roles.
Brexit has also boosted certain sectors, with risk management and finance – including compliance and regulation – seeing a rise in demand for contractor jobs as companies struggle to get themselves in shape and prepared for any Brexit eventuality.
While Brexit might be hitting all the current headlines, IR35 has long been a contentious issue for the contracting market. Since the Off-Payroll rules were introduced in the public sector – placing the burden of determining IR35 status on the company, not the contractor – the public sector contracting market has faced substantial issues as both companies and contractors adapt to the new landscape.
IR35 reform is due to enter the private sector in April 2020. Understanding the new landscape will be the first issue for clients and recruitment agencies to overcome, as well as effectively implementing it without impacting their ability to source or hire contractors. Contractors that work through a Personal Service Company (PSC) may increase their rates to compensate for incremental tax that may be due, while others may move into permanent roles. Either scenario means further competition amongst companies to attract niche skills.
HMRC are launching a consultation prior to the introduction of the new IR35 legislation in April 2020. This will be an opportunity for the contracting market to feedback to HMRC on the impact these reforms will have and help steer a positive outcome. Implementation as per the public sector raises many issues such as blanket decisions, use of the HMRC CEST tool, and the availability of skilled flexible resource that companies demand.
2019 Loan Charge
In addition to this IR35 extension HMRC has introduced the 2019 Loan Charge to try and recuperate unpaid tax through schemes that involved loans and have now been deemed as tax evasion or tax avoidance. The 2019 Loan Charge targets contractors who have used these disguised remuneration schemes since 1999 and they are being forced to pay back the tax ‘avoided’ by January 2020. Many contractors have engaged with these schemes based on advice by third parties or were attracted by advertising without realising the implications. It is estimated that as many as 40,000 to 60,000 individuals will be affected.
Options for these contractors include a settlement agreement with HMRC before April 2019 or challenging the advisers on their involvement in the schemes. A significant number of contractors are extremely worried about the large sums of money owed and the devastating impact it is having on their lives dealing with this burden.
Many experts have deemed the charge as disproportionate and many MPs have criticised HMRC for placing the retrospective burden on contractors. Legal and parliamentary action against the 2019 Loan Charge is ongoing.
All of these issues have contributed to an uncertain market for contractors. Some sectors and contractors may be benefiting from firms preferring to hire short term resource rather than add new permanent employees to the payroll. However, many sectors and companies are willing to pause large-scale projects completely. Certain areas like finance and technology still seem able to thrive despite Brexit, with IT contractor rates increasing by 12 percent in 2018.
Many of these issues have been building for a long time, and 2019 will be an interesting time in the contracting market – but many expect it will come out positively on the other side. The flexible opportunities in the UK, the demand for niche contracting skills and the desire for economic growth will hopefully outweigh the efforts of HMRC and politicians to stifle the market.