Life After IR35: what is the future for contractors in the UK?

7 mins

As the dust settles on recent legislative changes, UK Contractor Care Manager Lindsay Irvine...

As the dust settles on recent legislative changes, UK Contractor Care Manager Lindsay Irvine, reflects on life after IR35, how much it has impacted the UK temporary employment landscape, and what the future holds for freelance contracting.

‘Hectic’ is the word that comes to mind when I reflect back on the run up to April’s new Off Payroll Working rules coming into effect! I speak regularly with contractors, clients, limited companies and payroll businesses, who, like me, were all focused on ensuring everyone was prepared for the changes in tax legislation.

Lead Consultant, Jenny Walsh, was our resident ‘IR35 guru’ here at Amoria Bond – she lived and breathed IR35 for months as our project lead. Utilising software developed by Andy Vessey at Kingsbridge, Jenny successfully guided scores of clients and contractors through the transitional period. It’s think it’s fair to say that what Jenny doesn’t know about IR35 probably isn’t worth knowing! She effectively managed a myriad of client and candidate queries and concerns, explaining all the options, fully informing all parties, and processing a huge volume of paperwork to ensure everyone had a valid contract in place from 6th April. Providing an effective, compliant solution that mitigated risk for our contractors and clients was the number one priority.

It was a confusing, uncertain and even worrying period for many as they waited for confirmation of their status determination from their end client. Ultimately, it was inevitable that some of those who were deemed ‘Inside IR35’ chose to give notice and end their contract because of the impact on their income.  The ‘lucky’ ones were offered a rate increase to retain their services and soften the impact on their take home pay, but many opted to work via payroll companies, whilst others accepted a permanent role from the end client.

It was a settling time for many people. 

So, what now?

I anticipate a lot of shifts in the market place for contractors over the next few months.  Many enjoy their role, where they work and the experience and skills it has helped them develop and are committed to seeing their project through to completion. However, there remains a lot of uncertainty and I expect to see a fair bit of movement as contractors seek to protect their ‘outside IR35’ status by changing jobs more frequently, or seek better paid work to negate the impact of ‘inside’ determinations.

Whilst the past year has seen the job market face its worst crisis since the Great Depression, we are starting to see strong signs of improvement in the economy with 1.37 million active job adverts have been placed in the UK in recent weeks. (Jobs Recovery Tracker REC).

Will the increase in available roles lead to more movement in the marketplace? 

I strongly suspect so.  Whilst many, who were deemed inside IR35, opted to remain working with the end client, it is unlikely they will stay for the long term due to the financial impact of the changes.

Many people have already secured a new role elsewhere, sourced an outside contract, moved to permanent employment, or even opted to retire. 

As more roles become available I expect that pattern of behaviour will continue, especially as many clients opted not to work with limited companies anymore in their attempt to de-risk and avoid falling foul of the legislation. There has also been a lot of focus on rates and negotiations to secure a higher rate compared to pre April 2021.

Is this the end of contracting?

Although the announcement in this year’s budget, of an increase in corporation tax to 25% in 2023, was seen by many as a further nail in the coffin of personal service companies I know the value contractors add to our end clients, so it is unlikely we will see the end of contracting in entirely in the UK.

Clients often require resourcing and that needs to be a flexible solution to manage shortfalls in staff, an upturn in business, seasonal variations in demand, or require a specific skill set or experience to fulfil new projects that they don’t have in-house or don’t need long-term.

In these situations, it is not always viable for companies to hire permanent staff, and hiring contractors can limit the downtime involved in onboarding, inducting and training people.  Contractors can often bring the required level of experience and skills and can make a much quicker impact.

Cost-saving is another consideration. Although contractors may receive a higher pay rate, compared to permanent employees, as they are not entitled to benefits such as occupational pensions and share schemes; nor are they entitled to redundancy payments, maternity/paternity leave or company-related bonuses, they can actually be a cost-effective option and offer long-term savings can far outweigh initial costs.

I have always believed contractors provide an invaluable resource to clients, enabling them to scale up their operations, increase staffing levels or reduce them when necessary and at a fast pace.

In addition, to enable clients to be more agile in the market place a contractor can often be hired for their specific, specialist skill set. In turn, a good contractor can support other members of the team, share their expertise and aid training and development to upskill existing employees.

Contracting benefits the individual as well

Contracting is can be a great opportunity to maximise personal income for some, as there is the option to work on a variety of contracts and upskill ‘on the job’. Plus, the flexibility that contractor work can offer is also often attractive. Not to say there are not downsides to this line of work, be that lack of employment security, downtime between contracts and the administration involved in running your own company.  However, for many people it has been, and will continue to be an ideal approach to working. In addition to which, a lot of people who lost their job during over the past year, have chosen to accept a contract role and are learning the benefits of this style of work too. 

 Will end clients really want to work with UK contractors in the future? 

As we begin to come out of the other side of the global pandemic, the UK economy requires a flexible and agile workforce, be that contracting via a limited or payroll company, and I see that as an essential factor in our economic recovery.

But what do you think? Is the end of contracting or will it continue but with clients opting to work with people employed via payroll companies or will the decision taken to opt to employ people direct via fixed term contract?

Get in touch to find out how Amoria Bond can support you.