What's in store for contractors from Brexit

Last month’s announcement by Theresa May that a general election is to be held on June 8th could be the starting gun for some much-needed clarity on what the UK’s future relationship with the EU will look like, and where contractors fit in, writes Kevin Austin of global payroll and accountancy firm Access Financial.

If the prime minister's Conservatives win a substantial majority, giving them an enhanced democratic mandate for Brexit, it may have the paradoxical effect of softening the EU’s negotiating stance, resulting in a compromise deal which minimises any damage to both sides. The reason being that many within the EU are hoping that the UK will change its mind about Brexit. A pre-referendum poll indicates 44% contractors might want the same. And reports this week suggest those contractors are even more likely to support calls for a second referendum if they work in in IT -- a sector that is “particularly negative” about Brexit’s impact.

Deals, digital and divorce

But the EU’s belief is that we are more likely to U-turn or go for a ‘soft’ Brexit if the deal is highly detrimental to Britain. That’s exactly what France’s new President Emmanuel Marcon probably wants, given that he regards Brexit as a “crime.”

Interestingly though, Brexit is not going to be front and centre of the political campaigning over the coming weeks. Not at least if the business community gets its way. In fact, the British Chambers of Commerce has put issues like digital connectivity on a par with Brexit. The BCC says that like super-fast broadband and better mobile coverage, Brexit should be one of five priorities, not the priority.  Contractors in IT would likely agree that connectivity is as important as the Continent. But the queries we are receiving suggest otherwise.

Indeed, since the referendum result last June, we have received a steady stream of enquiries from British contractors working in the EU. These contractors are concerned about their residency status. For many of them, the opportunity to work in many different countries was always a major part of the appeal of contracting. Our replies to them must be factual. That is to say -- for the time-being, it will be ‘business as usual.’ However, as the March 2019 divorce date closes in, end-users in EU countries (and the agencies they use) will begin to take stock of their contractor resources. At that time, they will weigh up the benefits of using British contractors versus other EU nationals.

Imagining immigration, post-2019

Whatever the outcome of the negotiations between the UK and the EU, Brexit won’t mean the end of contracting opportunities in the EU. Much will depend on what sort of trade deal is agreed, and how freedom of movement is interwoven with that, if at all. Concrete details are scarce at present, but Mrs May’s letter to European Council President Donald Tusk notifying him of the UK’s intention to leave the EU provides a few high-level clues as to what the UK’s future relationship with the EU will look like.

The letter stresses the need for liberal, democratic values. This means Brexit may not mean an outright rejection of globalisation and a retreat from the world, as some have suggested. Indeed, the foreign secretary Boris Johnson recently suggested that freedom of movement might continue beyond the March 2019 cut-off date. This is something else we think contractors will welcome, and not just those in IT.

Yet open borders without a time limit isn’t the sure bet it once was. On Monday, Mrs May defied the expectation that she would scrap the Tories’ discredited promise to reduce immigration to the "tens of thousands," by saying that she too will get it down to under 100,000 -- if elected. It all begs a number of questions, the answers to which will affect contractors. What kind of immigration system will the UK end up with? What will happen with work permits? And to what extent will EU states reciprocate whatever we put in place?

Mrs May has talked about the UK and the EU remaining “committed partners” and the UK being “your closest friend and neighbour.” If she’s received well (and she wasn’t according to last week’s leaked account of her dinner with EU Commission boss Jean-Claude Juncker), her comments suggest that the UK’s relationship with the EU will not be equivalent to most other non-EU countries. They also seem to suggest that while we won’t be fully integrated into the EU’s freedom of movement rules (unlike Norway and Switzerland), there might be some kind of halfway house arrangement.

One option for the UK would be to introduce an immigration system like the KMR in the Netherlands. The KMR is the fastest and most flexible immigration regime in the EU and is a model we should look closely at. Such a system, if reciprocated by the EU (and it would likely have to be symmetrical), would allow the UK government some measure of control but not be a significant bureaucratic impediment to highly skilled contractors in areas such as IT, operating relatively freely across Europe. What it probably would do is restrict the flow of unskilled migration, which has been so politically contentious.

Your future as a limited (or umbrella) company IT contractor

The current points-based immigration system, which the UK applies to non-EU migrants is another alternative. Hirers have to try to fill vacancies from the local labour market before applying for work permits, but if occupations are listed on the Shortage Occupation List, the resident labour market test does not apply. There are a number of IT occupations on the list at present, including data scientists and cyber security specialists and it is quite likely that the number will increase as the flow of talent from the EU pipeline is restricted.

From the perspective of limited company contractors, the good news is that little is likely to change. In fact, whether a contractor operates through a limited company or an umbrella company has no bearing on their eligibility for a work permit. Readers of this Contractors’ Questions article on France might take some convincing that limited company usage will remain post-Brexit. But France has always been a peculiar case in Europe, in that the tax regime makes it relatively less attractive compared to other EU states to be a UK contractor. So we believe that UK contractors will still be able to operate via limited companies in the EU post-Brexit.

Put another way, in the post-Brexit world, limited company contractors are unlikely to be any more disadvantaged than other British workers. The reason for this is that work permits make no distinction for corporate structure. The critical factor is to what extent some degree freedom of movement is retained or whether work permits will be required and how difficult it will be to obtain them. We believe that, as they will be considered foreign workers, Britons contracting abroad will likely require some kind of permit.

Whatever the final detail on the immigration arrangements, it seems certain that UK workers will be at a slight disadvantage compared with other EU workers when trying to secure work in the European Union. There may be some compensatory factors, however. The devaluation of the pound triggered by Brexit, for example. This is mostly here to stay according to many economists. The devaluation should, in theory, make the UK and British workers relatively more attractive to foreign businesses. Tech companies certainly haven’t taken fright at Brexit. Snapchat, for example, has announced that London is going to be the home for its international headquarters. And that follows announcements by Google, Amazon and Facebook that they too are increasing their investment in the UK.

These companies are not alone in hoping that a flexible migration system emerges from Brexit. They know -- almost better than anyone -- that British contractors with the right skills are good value for money. And this holds true in EU countries. Deep down, and despite the ‘make-Britain-pay-for-Brexit’ rhetoric, these European nations also want a system that recognises the importance of highly skilled workers to economic prosperity.

‘Keep on-message to keep contractors on-board’

But in the weeks between now and June 8, don’t expect your client to sing this politically-induced message from the rooftops. Apparently wary from the bruising they took from speaking their mind in the referendum, bosses are said to be cautious about backing any single political party. One business lobbyist has even mentioned contractors -- “suppliers” -- as among those who the bosses don’t want to upset with their views. Refreshingly, Brexit is one area that most people in and around the business of placing professionals on temporary assignments tend to agree on -- everyone wants to make it work. There’s therefore every reason to think that British contractors will find many opportunities in the EU in the years ahead.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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