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The Trio of Uncertainty: IR35, Brexit and the Coronavirus

by Heat Recruitment

How to navigate uncertainty in the contractor market to ensure success

There have been three recent factors that have affected the contractor market and influenced employers’ decisions to hire them or not: IR35 and its subsequent delay, Brexit and the Coronavirus pandemic. All three have contributed to a significant amount of turmoil and confusion, however, learning why employing contractors to overcome the uncertainty they’ve caused will ultimately help support your business functions both in the short and long-term. And we’re going to show you why!

How can businesses rebound from the uncertainty caused by Covid-19?

Arguably one of the most important considerations an organisation can undertake in order to counter the economic downturn caused by the Coronavirus. Managing a crisis can be a consuming time for leadership teams but re-focusing and making sensible decisions about a contingent workforce will help ensure growth and increase revenue in the long-term. Employing contractors rather than permanent hires can help in the following ways:

  • Focus decision-making to look beyond ‘quick fixes’ such as redundancies and regain sight of the future
  • Fill any gaps in existing internal knowledge and resources
  • Revitalise interim projects that may have lost momentum due to the lockdown

How has Brexit impacted the contingency workforce?

  • Impeded talent acquisition across Europe – The ability for businesses to access talent from the EU following the impact of new rules, tariffs and regulations has been affected. In fact, one in ten businesses say the number of EU nationals they’ve recruited since the Brexit vote has decreased.
  • The option to work remotely is shifting – Contractors can work across a myriad of sectors throughout the EU but may have been dissuaded in doing so due to the complicated nature of Brexit implications on immigration rules. However, the option to work remotely is growing in popularity – with the Coronavirus pandemic highlighting the viability of this new way of working.
  • Relocating business functions – 1 in 5 businesses say they are considering relocating their business outside of the UK due to Brexit and a further 9% are looking beyond our borders for any future expansion of the business. In combination, contractors will be increasingly relied upon as a flexible, remote source of work.
  • However, employing contractors is still a viable option in the face of the Brexit uncertainty and increased regulations, as we shall see when we consider the IR35 regulations.

What is IR35 and what has happened to it?

Dubbed as the biggest revenue raiser on the autumn 2018 budget, the introduction of IR35 to the private sector intended to clamp down on contractors operating in what HMRC describes as ‘disguised employment’ – that is to say, working off the payroll through an intermediary such as a limited company to circumvent the need to pay the tax rates due for contractors. Indeed, figures from the government’s own research predict that the change to how IR35 regulations are applied will generate an estimated £1.3bn a year by the 2023-24 financial year. Originally, new legislation for IR35 was due to come out in April 2020, but due to the Coronavirus it has been delayed until April 2021, this means there is plenty of time to evaluate your contractor workforce and requirements and work out if they are compliant.

IR35 has already been the source of confusion to business leaders across the private sector who fear the only route to compliance is to employ contractors directly or let them go – and, according to research from Brookson Legal, the feeling is mutual for contractors. In a survey of more than 500 contractors that asked how they would respond if an employer found them to fall under IR35, 3 in 5 said they would seek alternative work with other businesses.

The key change prompting firms to take cover is the shift in liability. If a contract is deemed to fall inside IR35 regulations, then the fees paid to the contractor are deemed to be a salary, from which employee taxes should be deducted. Under IR35, it will be the responsibility of the hiring company to pay those taxes as opposed to the contractor’s limited company.

Retaining top talent and remaining compliant

Realistically, IR35 regulations shouldn’t prompt firms to push valuable talent away. On the contrary, regulations simply encourage leaders to ensure all working relationships with contractors are compliant by defining the status of the contractor against HMRC’s criteria for tax purposes. Their checklist includes whether that person can do the job and is there a right of substitution? How much control the employer has over the methods used by the contractor to do the job and whether the company is obliged to offer the contractor work.

Surely, during a persistent talent shortage, a blanket-removal of all contractors is counter-productive to business growth and profitability. This in mind, the future workforce should not be about removing contractors for the sake of reducing risk but rather about assessing relationships, offering employment where necessary but retaining contracts that fall outside of IR35 to maintain productivity and retain the competitive edge.

Here at Heat Recruitment, we have specialist recruiters who focus on contractor placements and can help you build the team you need for short term and long-term solutions and get IR35 compliant.