IR35 ‘blanket ban’ clients to lose out as demand for contractors increases

As the economy recovers and the demand for contractors continues to rise, a legal expert explains why businesses that are unable or unwilling to engage workers on an ‘outside’ IR35 basis will lose out.

Matt Fryer, Head of Legal Services at Brookson Legal, explains more.

Back in April new IR35 legislation was introduced which, as expected, shook up the engagement of the contingent workforce. In order to meet the April 6 deadline many contractor-dependent organisations chose to implement a blanket ban on working with Personal Service Companies as a seemingly simple and easy solution.

This forced many skilled contractors, whose roles were determined as inside IR35, to be engaged via an umbrella company.

However, as the job market begins to grow, will these businesses reconsider their position and re-engage with an independent contractor workforce?

A quick solution, but not a fix

Business that scrambled to implement a blanket ban will have done so as a ‘quick fix’ solution ahead of the deadline, because they believed it avoids potential compliance issues.

However, blanket bans are not a sustainable method of working with contractors and this is already becoming evident in the skills shortages for in-demand roles such as those in IT.

HMRC discrepancy

Data from the Government’s Check Employment Status for Tax (CEST) tool has recently been published. It’s become evident that there are huge discrepancies between its usage data and the number of private sector contractor roles being advertised as outside of IR35.

Prior to the pandemic, HMRC had estimated an outside/inside IR35 status determination split of 70% / 30% respectively, whereas now the CEST tool is showing only 49-56% of contractor roles clearly falling outside of IR35.

Added to this, there is a ‘grey’ area highlighted by the CEST data of approximately 20% of roles which require a more detailed assessment to determine IR35 their status.

In contrast to this, market data taken from Jobfeed w/c 7 June has shown only 26% of contractor roles are advertised with an outside IR35 status. This clear discrepancy indicates that businesses are either not confident in their determinations or are missing a trick in advertising an outside IR35 status.

Skills shortage

The skills shortage, which is currently affecting several industries as the country reopens, also adds pressure to businesses who implemented blanket bans.

The latest data from the Recruitment & Employment Confederation (REC) Job Recovery Tracker (21-27 June) showed there to be over 190,000 new job postings, equating to over 1.55m job vacancies in the UK.

These figures are stated to be driven by the re-opening of industries such as hospitality and leisure, both of which were shut during the pandemic and are now levelling off higher than the pre-pandemic levels in March 202o.

As the job market begins to expand, the demand for specialised roles such as those within IT also remains high. It is understandable that other factors such as Brexit and the pandemic have affected the contractor workforce, but IR35 also plays a pivotal role in recruiting the best talent possible for the role.

In a busy jobs market contractors are unlikely to spend time applying for roles which may later be determined inside IR35. It’s clear to see that in order to ensure these firms can offer an attractive proposition, they should begin including IR35 status on all contractor roles advertised.

Next steps for contractors

For IT contractors, it is your jobs market – there are a multitude of end hirers looking for high-skilled workers to support their organisations.

Now is the time to seek out hirers that are proactively communicating the reasonable care and diligent approach they have taken to IR35 by advertising status determinations on job roles.

This will allow positive relationship with the end hirer to be established early on in the pandemic recovery, at a time when the flexible workforce will become increasingly important for business growth.  

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