Contractor Trends for 2023: IR35 and Off-Payroll
by on January 13, 2023
After a tumultuous time for the IR35 and off-payroll sectors during the last year, here we look ahead and try to predict what lies in store for white collar contractors in 2023.
Way back in September, the UK’s third Chancellor of the Exchequer in four months, Kwasi Kwarteng, promised sweeping reforms of the IR35 rules, in his “low tax ‘mini-budget’”. This announcement was greeted with cautious optimism by the industry, but eyes were soon rolling as Mr Kwarteng’s rapid succession, Jeremy Hunt, decided to reverse Mr Kwarteng’s decision and leave the situation as it was.
Opponents of the current IR35 rules, which mean that the onus for deciding contractors’ tax status lies with their client, have argued that this imposes an unnecessary level of bureaucracy on businesses, and has led to problems recruiting vital staff at a time of increasing recruitment difficulties.
The current status quo leaves both contractors and their potential public and private sector clients back in the position in which they found themselves in 2017 and 2012 respectively. According to a survey conducted on behalf of IPSE (The Association of Independent Professionals and the Self-Employed), almost half of UK businesses rely on freelancers and contractors to achieve sustainable outcomes. However, 28% of them have decreased the number of contractors they ‘employ’ since the 2021 reforms; clearly these reforms are not having the impact the government anticipated that they would have and new thinking is required.
Does size matter?
Clients who rely on contractors may be tempted to, or simply have to, resort to consultancies in order to attract the contingent staff they need for their business. However, in these times of constrained budgets and the cost-of-living-crisis affecting far more than individual households, many larger consultancies are considered to be too expensive. Therefore, we expect to see a rise of small and medium sized consultancies whose day rate is not unaffordable.
The concern with this practice, however, is that these smaller consultancies may not be completely up-to-date with the off-payroll rules, putting both their contractors and their clients at risk of falling foul of tax avoidance legislation. If you’re a contractor or a client, it’s up to you to perform due diligence on these firms before you sign on with them.
There were a lot of very bad headlines for the umbrella and associated industries in 2022. We have covered salary skimming and the lack of regulation previously, but Managed Service Companies are the latest to come under HMRC’s spotlight.
A simple way of avoiding headlines which bring the industry into disrepute would be to encourage compliance through tougher regulation, which would also benefit HMRC.
According to online educational site Edvoy, the six most in-demand jobs in the UK for 2023 are:
- Programmers and software developers
- Cyber security specialists
- Health service and residential care practitioners
- Graphic designers
- Physical scientists
If you’re experienced in any one of these areas, you can be certain that your skills will again be in demand this year. And, because you work in a sought after field, not only will you be able to negotiate a rate that suits your skills and experience, but you’ll also be able to choose whether you opt for off-payroll and IR35 contracts.
Continued CEST complications
We have discussed the CEST debacle previously, and as early as 2021 concerns were being raised about its cost and effectiveness.
In an Economics Affairs Committee meeting in December 2021, Lucy Frazer MP told a sub-committee that she believed that CEST’s initial cost of £19.7 million, and ongoing costs of £8.4 million, were ‘sound and reasonable’ despite the fact that ‘only 80% of cases get a clear determination’.
This all leaves some of the UK’s white collar contractors in a state of limbo when trying to determine their status, and may actually hamper the government’s efforts to bring the economy back on course, and future proof it, as outlined by the new Chancellor of the Exchequer, Jeremy Hunt.
He recently explained that he wanted to turn the UK into the next Silicon Valley, but omitted to clarify who would be staffing these high-tech companies, given the shortage of talented IT personnel in the UK, and whether, as contractors, they’d fall inside or outside of IR35.
Whether these issues will be sorted out during the course of this year is uncertain, given the government’s other, more pressing issues. We continue to hope that the white collar contractor is more effectively supported during the course of the next twelve months and that efforts are made to iron out the issues which continue to hinder it.