One year on from the government’s reform of IR35 – rules outside the UK’s payroll – and a picture emerges of businesses struggling to recruit IT contractors.
The updated rules, introduced on 6 April 2021, mean that all medium and large enterprises are required to determine whether a worker is a contractor or an employee. The same rules also apply to public sector organizations.
If the business makes an incorrect assessment, it is responsible for paying lost National Insurance.
The government first introduced anti – evasion tax legislation in 2000. Its aim is to stop contractors from receiving payment through an intermediary, such as their own limited company, and to distribute the profits in a way that avoids paying national insurance and reducing their income tax bill.
HMRC has measta the non – compliant cost of IR35 in the private sector will reach £ 1.2bn per annum by tax year 2022/23.
Prior to last year’s amendments to IR35, firms warned that the additional compliance costs would prevent firms from using IT contractors.
There have since been reports of organizations banning contractors of limited companies outright, or outsourcing IT work to overseas businesses.
ONS data it supports a reduction in contractors in the UK, with 793,000 people no longer identifying as self – employed between the first quarter of 2020 and the end of 2021.
IT contractors have stated that they feel they are under the new rules and that the self-employed are being unfairly targeted.
Meanwhile, firms have said the IR35 reforms make IT recruitment more difficult.
Details released by insurer and specialist IR35 Kingsbridge Contractor Insurance found that half of firms cited off – payroll rules as the biggest hurdle in hiring in the past year.
The report also found that over 70% of businesses and recruiters have seen a reduction in their personal service company (PSC) limited company contractors since last year’s reforms.
According to IPSE data, there are over 91,470 contractors or volunteers working in the UK IT industry.
Since the IR35 reform, half of UK contractors are considering closing, retiring, or leaving the UK and 25% of contractors are looking for work abroad, the report found.
It comes in the midst of a competitive recruitment market, and IT jobs are particularly in high demand.
Of the contractors placed inside IR35, the day rate has increased by 37% compared to 20% of contractors outside IR35 in the last 12 months. The result is that IT firms are almost twice as likely to pay IR35 contractors more.
For businesses, it means growing costs at a time when inflation is 7% higher than ever.
“The UK economy is being hit by a severe recruitment crisis, with many IT firms struggling to fill critical roles,” says Paul Havenhand, CEO, Kingsbridge Contractor Insurance.
“Contractors, as a highly skilled and flexible resource, could provide a much-needed interim solution to keep things working and avoid major disruption to UK business. But IR35’s complexities and perceived risks are disrupting your business. ”
A HMRC spokesman said RATN IR35 amendments are designed to “ensure that rules in force since 2000 are properly applied”.
The spokesperson added: “We have consulted widely on off-payroll work and are continuing to deliver an extensive education and support program to assist industry and contractors in implementing the reform. How an organization decides to hire its workers remains a business decision for organizations. ”
IR35 is still a source of confusion
The IR35 reforms have been in place for just over one year, but there is still confusion about their implementation among some firms.
Anne Mannix, an employment partner with law firm Spencer West, says her firm has helped a number of firms that have mistakenly adopted the regulations imposed on them. Mannix said that for IR35 for business, it must meet two of the three gate tests for employee numbers, balance sheet and profits.
Mannix also expressed concern that some firms are making a “general decision” about the legislation or pressuring contractors to use a “separate umbrella company”.
Mannix added: “Not only can these businesses end up paying extra National Insurance, but they are preventing their contractors from making the most of their own tax cases and failing to diligently comply with legal requirement. ”
YunoJuno founder Shib Mathew argues that the government could do more to “refine the legislation” and says it will take time to make legislative changes.
Xenios Thrasyvoulou, founder and CEO of TalentDesk, said the government should focus on growing the economy after Brexit and Covid-19 – “not looking for the needle in grass stock”.
Thrasyvoulou said: “We live in a world where UK businesses (and individuals) are tackling fundamental issues such as export and import of goods and access to talent, and instead of promoting growth and innovation, the government is trying to restrain something that will do absolutely. do not move the needle. ”
IT recruitment introduced by contractor tax rules
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