IR35-weary PSCs eye full-time jobs, in spite of ‘permie challenges’
Employer National Insurance. The Apprenticeship Levy. And even the Status Determination Statement.
Just three on a long list of IR35 reform-related costs passed on in recent weeks from engagers to limited company contractors, forcing a hefty chunk of such PSCs to eye permanent jobs.
But there’s even more imposition on PSCs to explain why according to Interim Partners, one in five contractors has been considering quitting contracting to take a 9-to-5.
There’s extra tax from inside IR35 assignments; or the extra tax (and fees) from umbrella company contracting and, tied to both ways of working, the loss or curtailment of expenses.
'Passing on their costs to contractors'
Interim’s findings confirm -- 40% of contractors expect their take-home pay to fall when the IR35 rules change, increasing to 65% of contractors in the financial services industry.
“[Many engagers] who banned PSCs or who have flawed assessment processes have been passing employment costs onto contractors,” says James Poyser of inniAccounts.
“Couple that, with the inability to claim travel expenses -- and many contractors have long commutes, [you can see why] net pay rates are dropping by around 40%.”
So it’s not surprising nor “unreasonable,” says Poyser, for PSCs to look -- maybe for the first time in their careers, at trying to secure a permanent role. Even though some include pay cuts.
'No SDS, no opportunity to challenge'
But ‘unreasonable’ is how engagers have been handling the off-payroll rules, even to the point of non-compliance, hints one PSC. This too makes full-time work, away from IR35, look appealing.
“The roles being [determined by my engager’s third-party advisory as] ‘inside IR35’ will not be issued with a client SDS,” says an IT contractor for a supermarket giant.
“So there’s no opportunity to challenge the determination. This approach does not align with the revised IR35 rules, but the client has confirmed its ‘no SDS for inside’ roles in writing.”
'No more IR35 to worry about'
Other contractors point the finger of blame at the instigator and enforcer of the IR35 rules.
“I was a contractor, but felt HMRC gave me no choice but to cease trading and look for the right permanent opportunity,” says an ex-PSC in week one of her transition to ‘permiedom’.
“Thank God I've decided to go perm. No more IR35 [to worry about] and I can work from home, earning a salary, [even during] a national [health] emergency.”
Yet it’s not a transition to enter in to lightly. “The permanent job market is going to be difficult for seasoned contractors to transition into”, cautions CV expert Matt Craven.
“Unfortunately, permanent recruiters just don’t like the profile of people who have contracted. It’s a similar scenario to the prejudice I would expect if I decided to apply for a job.
“I’ve run a business for over 14 years and I would expect employers to have their reservations about my ability to transition back into corporate life. Whether that is fair or otherwise, it’s just the reality of the situation.”
Speaking ahead of his ‘World Class CV’ webinar for ContractorUK readers later today, the boss of the CV & Interview Advisors also flagged up the more visible barriers.
“The life of a permie is often quite different to being a genuine contractor. There’s differences in culture, mindset, politics, tax too. But the first port of call -- the application process, is also very different whether it’s with CVs, LinkedIn or interviews.”
'Raft of resignations'
In light of these many differences, there will be question marks for engagers’ over whether their new staff members who are former contractors, will remain as a former contractors.
“How long will these new permies stay in permanent roles?” asks inni’s Mr Poyser, who runs off-payroll.org.
“Our research shows over 75% of contractors expect the market to return, and when it does, will we see a raft of resignations? This is what we saw after the 2008 financial crisis.”
Currently, six in 10 businesses say that the new IR35 rules will have a “large impact” on their operation, and are “concerned” that they will not have enough resource.
'Low-risk = high-tax'
But Iain Pennell, director at New Street Group, which produced the finding having run a survey between December 2019 and February 2020, believes the taxman has made it too easy.
“It’s clear why so many contractors are looking towards permanent roles – they know that HMRC will be taking a much bigger slice of their income.
“The way this change is being implemented by the government means that a lot of businesses are being forced to take the low-risk approach on how they classify their contractors for tax purposes. Unfortunately for contractors, the low-risk approach is also the high-tax approach.”
'Outside IR35 contracts now coming through'
However, it’s not all one-way traffic for PSCs. “We are starting to see a few contracts coming through that have been assessed as outside IR35,” says Graham Jenner of Jenner & Co.
“And we’re seeing a few that have been determined as ‘inside IR35’ but the end-client is allowing a PSC to be used -- which means there is a chance of getting it determined as outside, or agreeing another contract that is outside IR35.”
Such contracts would provide a welcome respite to a niche financial service recruiter Bowers Partnership.
“It’s pretty dire out there at the moment,” said the firm’s founder Natalie Bowers, speaking last week.
“Contract job volumes are through the floor. Fixed Term -- the worst of both worlds in my view -- has raised its ugly head. And I don’t like to use the word ‘tumbleweed’ but I can’t remember when the market was this quiet.”
In line with the recruiter’s downbeat assessment, agency body APSCo has said contractor placements fell 10 per cent between January and February 2020, as engagers affected by IR35 reform “shy away from contingent workers.”
Editor’s Note: The research by Interim Partners cited in this article was conducted before the government announced that HMRC will delay the IR35/off-payroll rules by 12 months, meaning that the rules will now take effect from April 6th 2021, not April 6th 2020.