Contractors, mind the gap between outside IR35 roles live now, versus outside IR35 roles we’ve assessed

In line with the contractor industry’s predictions, IR35 reform has shaken up hiring in the private sector since its introduction in April.

It is clear that many hirers took ‘quick fix’ approaches, including blanket bans on PSCs, which are now adversely impacting their business, as the jobs market recovers from the covid-19 pandemic but the talent they need is still on the ‘forbidden’ list.

Pertinent off-payroll questions

The questions to my mind, writes Matt Fryer, head of legal services at Brookson Legal, therefore are -- could the skills shortages that we’re currently seeing in sectors such as hospitality, haulage and IT, be just the tip of the icstemeberg?

Related to that, are a lack of confidently assessed outside IR35 positions doing nothing to stem the tide of skill-starved sectors? And if ‘yes,’ could we witness more industries with stalled projects due to a disconnect between the number of bonafide contractor opportunities which should exist across the UK’s commercial operations, and the number which for-profit organisations are actually making available?

Market growth

Recent data from KPMG and the Recruitment & Employment Confederation in Report on Jobs found that the upturn in temporary billings was among the fastest in the survey history; vacancy growth hit a new record and the availability of workers declined at an unprecedented rate.

Consequently, attracting talented individuals to apply for and fill openings is proving challenging. In fact, the Road Haulage Association this month told the prime minister that it is facing a shortage of approximately 100,000 drivers. This is understandably having a knock-on impact on associated industries, with food and construction product deliveries delayed, prices increasing and project delays inevitable.

Although there are a number of factors which have created this ‘perfect storm’ (including Brexit, the pandemic and a historic skills shortage experienced before 2020), the impact of IR35 changing should not be overlooked.

In a workers’ market with high demand for skills, contractors are unlikely to accept inside IR35 assignments when they can find similar roles outside IR35. Yet significantly, data from Jobfeed indicates that many companies are still not clearly advertising the roles along with the IR35 status determination, as they should be.

IR35 role clarity

Currently, and totally underreported in my view, there is a huge discrepancy between the number of roles determined to be outside IR35 by HMRC’s CEST tool and the number of jobs actually being advertised as outside.

The Jobfeed market data shows that only 26% of contractor roles are currently being advertised as outside IR35 (w/c 7 June), but at the same time CEST data suggests the figure should be closer to 49-56%. This does not include a further 20% of CEST ‘undetermined’ roles that require a more nuanced approach to determine the status (but some of which could eventually end up ‘outside’ too, potentially adding further to the 49-56% proportion). 

Meanwhile our own data, based on tens of thousands of reviews undertaken for our clients in the last 12 months, indicates that a hefty 72% of roles are outside IR35. Looking back at the Jobfeed data (just a slim quarter of opportunities advertised are only for bonafide contractors), it all rather suggests that many firms are still not confident in the IR35 determinations that they are making.

Problematically for UK plc, as demand for skilled labour begins to outstrip supply, contractors will look for those hiring businesses which are able to state an outside IR35 status on role advertisements, having demonstrated the use of ‘reasonable care’ via a robust and diligent approach. Such an approach provides clarity over the role and what is expected, as well as ensuring that the company is offering an attractive proposition for talented and experienced contractors. It is highly unlikely that contractors will want to spend time applying for opportunities which lack clarity on their status and may later be deemed as inside IR35.

The future of the jobs market

For contractors right now, the labour market is buoyant, with end-hirers in acute need of experienced and knowledgeable professionals on a flexible basis to support their commercial growth. This is resulting in increasing pay rates and contractors being able to ‘pick and choose’ between roles. At the same time, some end-hirers have effectively limited their hiring ability due to the IR35 reform-induced blanket PSC bans, which could in time restrict their growth. Will they now be forced to rethink their strategy?

By looking to the public sector, where similar IR35 legislation was introduced in April 2017, we can see how the next year or so will likely unfold in the private sector. With the jobs market expected to continue to grow, we can assume that the commercial sector will follow a comparable trajectory as the public sector did – with blanket bans being overturned within the first year, to enable businesses to access the flexible talent required.

A domino effect, before the HMRC IR35 ‘soft landing’ ends?

So far, any resulting pain seems to be being felt a sector at a time, with those that are reopening most rapidly, such as hospitality, seeing the greatest staff challenge. As the rest of the economy picks up, we would expect to see demand expand across an array of technically skilled and specialist professional skills to underpin growth. It will be interesting to see whether this creates a ‘domino effect’ of addressing previously questionable IR35 solutions, sector by sector, as businesses put more robust processes in place to ensure access to talent in a competitive market.

Of course, the clock is also ticking on the deadline for HMRC’s ‘soft landing’ for the off-payroll legislation changes, with penalties for those who have failed to correctly determine the status of their contractors likely to start appearing from April 2022. Once this happens, many firms yet to change tack may start to realise that taking ‘reasonable care’ to release requirements outside IR35 can be achieved cost-effectively when compared with the potential risk exposure to their business. These factors combined could see the IR35 jobs market begin to level off, settling on a split aligned to HMRC’s projected 70% outside and 30% inside IR35 by mid-2022.

My final IR35 recommendation(s) to contractors

For contractors, all the signs suggest that now is the time to look for end-hirers who are forthcoming and transparent enough to advertise IR35 status on their roles, and who can subsequently demonstrate their use of ‘reasonable care’ and the fulfilment of their other obligations under the legislation. The long and short of it is that we expect the impact of IR35 reform on the contractor market to balance out over the coming year. But for now? It’s the perfect time to establish and build relationships with hirers that clearly value the expertise which contractors offer.