“ The dust never seems to settle around IR35, it just appears to be a constant storm.”   says Andy Hallett – recruitment expert and Co-Founder of RecWired, a network of over 600 recruitment agency owners.

It seems that at its core, this ongoing ‘storm’ surrounding the off-payroll regulation (IR35) is being nurtured by the growing demand for a highly skilled workforce, along with the supply chain hurdles; end-hirers and recruitment agencies are facing today. For many businesses, the current regulation might translate into long-term shortages of skilful professionals and overall slower growth.

After the repealing announcement during September’s Mini-Budget and the IR35 U-Turn that followed, we met with Andy to get a better grasp of where the ‘IR35 ship’ might be heading in the coming 12 months and how it may affect the contracting job market – more specifically – Outside IR35 contracts.

Q:   It’s been more than a year since the current legislation was introduced in the private sector, do you see the dust starting to settle or a different recruitment approach by employers with regard to Blanket IR35 assessments?

A:   The dust never seems to settle around IR35, it just appears to be a constant storm. Ever since its inception in 2001 HMRC has been intent on following through on what many believe is a bad piece of legislation. The changes that have been the most dramatic have been where the responsibility changed from determining the status from the contractor to the end hirer, this was seen first in the public sector in 2017 and then in 2021 in the private sector having been delayed a year due to Covid.
It’s fair to say that I have seen a range of different approaches by corporate employers. Initially many just came up with blanket determinations that no PSCs (Personal Service Companies) could be used. Some still maintain this, but there has been a shift in several firms realising that they are potentially missing out on a highly skilled section of the workforce. Conversely, a whole host of companies and agencies who haven’t yet put in place policies and procedures to manage the supply chain of their contingent labour force, have started to build themselves some big long-term liabilities!
Furthermore, and drawn from the current structure of demand in the contracting market, we can see how job boards adjust their ‘showcase window’ and clearly separate between Inside and Outside IR35 contracts.

During the COVID19 pandemic, a huge number of companies had to bring forward their digital transformation or face going out of business.
The demand for experts in the energy sector has remained high and will only get stronger in my opinion. With traditional fossil fuel projects starting to cost back in due the rise in prices and the constant push to add renewable capability to the grid, the market for skilled engineers looks solid.

Q:   Drawing on your experience with recruitment in general and more specifically the freelancing and contractors niche, how do you see the contracting job market evolving throughout 2022/23?

A:   I think the crazy demand we saw in the first half of 2022 has softened a bit, that said the needs of top talent will remain constant. We will continue to see employed staff leaving their firms to set up their own businesses and freelancing operations as they seek out higher remuneration and flexibility. One trend that I think started in Covid and will continue is remote and hybrid work, which plays nicely into the flexible labour market. Companies got used to trusting work to be done off-site and in a flexible time frame. Remote working brings a whole host of opportunity but also risk around taxation and employment rights. The need for and the desire of freelancers to provide flexible working is robust and I fully expect to be talking positively about the sector again in twelve months’ time.

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Q:   What about daily rates? With the latest economic developments, have you noticed any change in overall demand for temporary workers or any effects on pay?

A:   The flexible labour market appears to be in rude health. Despite economic headwinds, the war for talent has never been more intense. In the UK, Brexit has meant that contractors from Europe face tougher regulations to work here causing a further shortage, partially mitigated by UK workers not being able to work in Europe as easily. Recent announcements by some of the listed staffing firms indicated that demand was exceptionally strong in the first half of 2022. This mirrors what I am seeing with the staffing firms I advise, although I can see this starting to cool in the second half of the year.

Q:   You’ve mentioned the strong position the flexible job market holds at the moment. Do you recognise industry sectors which have proven to be more resilient to the recent economic instability?

A:   The IT sector has been strong for a number of years. Technology is at the core of everything we do and the education system hasn’t kept pace with the demand for professionals in this space. During the COVID19 pandemic, a huge number of companies had to bring forward their digital transformation or face going out of business.
The demand for experts in the energy sector has remained high and will only get stronger in my opinion. With traditional fossil fuel projects starting to cost back in due the rise in prices and the constant push to add renewable capability to the grid, the market for skilled engineers looks solid.
They are just two sectors where I have a specialism, but the UK has close to 1.3million job vacancies according to a July 2002 ONS report. The biggest growths seen here are in Hospitality and Financial Services.

Q:   Let’s talk about the official communication revolving around IR35, so far. There seem to have been ongoing confusion around the implementation, both in the private and public sectors. In what way do you think the guidelines could be better communicated to employers, recruiters and contractors?

A:   For a piece of legislation that is over twenty years old, it still remains a mystery to many. The difficulty as I see it is that no contract is the same. Every assignment, firm, or individual has different facets and as such, it is very difficult for the layman to accurately work out whether a role falls within or outside IR35. As well as the primary legislation, there are also years of case law to trudge through. I think the confusing thing from my standpoint is the way that employment and tax law don’t align creating a third category of workers that have limited rights but are taxed as an employee.
There is little faith in the government’s own Check Employment Status Test (CEST) which receives two repeated criticisms. Firstly, there is a belief that the test is skewed towards HMRC’s view of what constitutes Self-Employment and doesn’t take into account the myriad of case law that has been developed over the years. Secondly, it doesn’t always give a result, leading to further confusion on all sides.
Confusion has also allowed the marketing of some really clear Tax Avoidance schemes. Firms offering 85% take-home to low pay are made to appear compliant when in reality they are going to leave workers and potentially others in the supply chain in a very difficult situation in years to come.
Rather than communicating the guidelines better, I think making the guidelines clearer and tackling these schemes should be the priority.

It’s fair to say that I have seen a range of different approaches by corporate employers. Initially many just came up with blanket determinations that no PSCs (Personal Service Companies) could be used. Some still maintain this, but there has been a shift in several firms realising that they are potentially missing out on a highly skilled section of the workforce. Conversely, a whole host of companies and agencies who haven’t yet put in place policies and procedures to manage the supply chain of their contingent labour force, have started to build themselves some big long-term liabilities!

Q:   Finally, what is your take on the chances that the Government will adopt any past off-payroll consultations? Do you think there’s a political and financial case for some legislative adjustments during the next tax year?

A:   With the appointment of a new Prime Minister and new Chancellor, there was hope that IR35 and its subsequent reforms would get a neutral and robust review, nobody expected Kwasi Kwarteng to repeal the reforms. Now with a new Chancellor in place, who has repealed the repeal, I think we are back to hoping that we can get a fair review. Tax should be fair and predictable, not a political football.
The government recently released the results of an Employment Status Consultation. They did address the issue of employment and self-employment; in a nutshell, the view was that it looks too difficult to fix for now.
Much like many of the recommendations of the Taylor Report which have been unadopted, these reforms are so structural and cut across so many different laws and policies it is unlikely to be reformed in the near term. HMRC are very proud of the results that they are getting, measured in tax revenue, from their reforms in the private and public sectors, and in a time where every penny counts, I can’t see any reforms being led by them other than further enforcement and sending big companies big bills.

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