According to a survey from Kingsbridge Contractor Insurance, IR35 private sector reforms, introduced just over a year ago, are posing the biggest obstacle for firms looking to hire specialist contractors.
Half of the companies surveyed in the report named IR35 as the main barrier to engaging contractors over the past year. The study also revealed that 70 per cent of recruiters and businesses have reported seeing their limited company contractor workforce reduced in the last 12 months.
Kingsbridge Contractor Insurance CEO Paul Havenhand commented: “Contractors, as a highly skilled, flexible resource, could be providing a much-needed interim solution to keep things working and avoid major disruption to UK businesses. But there has been a 11 per cent drop in working contractors in the last twelve months.”
Havenhand asserted: “The complexities of IR35 and perceived risks are putting businesses off.”
Kingsbridge’s survey also found that the majority of contractors (70 per cent) will now only look for roles that are designated as being “outside IR35”, this is in spite of 60 per cent of roles currently available being classed as “inside IR35”.
Since the introduction of the reforms, many contractors have been keen to avoid being classified as working “inside IR35”, with such a classification meaning they would pay the same tax rates as employees without receiving employment benefits.
This eagerness to avoid being classed as “inside IR35” is also being cited as a major factor in the rapid increase in umbrella company usage over recent years, with more than 500,000 workers now using an umbrella company as of the end of 2021.
While umbrella company work doesn’t offer the tax advantages of limited company contracting, it does not fall within the scope of IR35 rules, considerably easing the administrative burden on contractors and the businesses that engage them.
Author: Steven English