Outside IR35 public sector roles have more than recovered -- the private sector is surely next
Data we have seen reveals that the number of public sector contractors increased less than 12 months after the public sector off-payroll legislation – and it’s fair to say that there is now a hope – but also an expectation – that the private sector will follow suit, writes Andy Robinson, business development director at Kingsbridge.
IR35 reform = 'outside' contracts drop, increase, then stabilise
Those public sector IR35 reforms, which came into effect on April 6th 2017, initially saw a drop in the number of public sector contractors working outside – a similar drop to that being witnessed now in the private sector. But the data show this number then increased and stabilised again quite quickly -- by March 2018.
Currently, we anticipate that this recovery in limited company contractor volumes will be mirrored in the private sector. In fact, some of our clients are already seeing an increase in levels of contractor opportunities as things have begun to stabilise, following the private sector IR35 reforms of April 6th 2021.
Public sector contracts rallied following the 2017 reform
Back to that data, shared with us by one of our partners on government department levels.
Public sector contractors working for a number of central departments saw a drop of 8.6% from March 2017 to April 2017, demonstrating the immediate knee-jerk reaction that the public sector IR35 reform had. It’s a fluctuation that’s in line with what the private sector is seeing today.
Positively, the number then increased again by March the following year, with the volume of public sector contractors working outside IR35 upping by 11.9% -- from April 2017 to March 2018, at a number of government departments.
These figures - based on government statistics for central departments’ use of outside IR35 contractors – cover the month before, immediately after, and 12 months following the public sector IR35 reform of April 2017. Significantly, they reveal that the number of contractors working outside IR35 rose to higher levels in the public sector than before the IR35-off-payroll reform was introduced.
Private sector set to follow suit
This overall increase of workers in the public sector is, in my view, indicative of what is to come for the private sector reforms following the change to legislation since April this year.
Now that the dust has settled on the reform and the worst of the coronavirus pandemic is (hopefully) behind us, more businesses are beginning to return to work and financially recover. So companies should be in a better position to review IR35 status determinations on a case-by-case basis.
In fact, today, now a couple of months past the April 6th commencement date, we know of many businesses that have completed their IR35 assessment obligations. Perhaps being on top of IR35 status testing has become all the more necessary, because one effect of lockdown lifting and then being reinstated appears to be that a growing number of businesses are hiring short-term contractors, as opposed to taking on the cost of maintaining full-time staff.
At the same time, there has been a rebalance in how contractors are being paid. And that’s not been good news for all contractors, with some being placed inside IR35 since the April reforms. Although this was widely expected, many contractors who have been decided inside IR35 or subjected to blanket PSC bans (i.e. being told they are unable to use their limited company), are having to look at other options, like umbrella companies or agency payroll.
Businesses must assess fairly to source top talent
That said, given the optimism in the contractor recruitment market, and especially in IT where the usage of PSCs has been traditionally high, the more opportunities in favour of contractors could see businesses which applied blanket bans, or who insisted on inside IR35 roles, think again. Why? Well, finding yourself missing out on top talent is a big motivator! A December 2020 survey we ran sort of warned that this might happen, as only 14% of contractors said they would accept an inside IR35 determination.
To me, it all rather suggests that businesses hoping to attract top contracting talent will need to actively show that legitimate freelance professionals can continue to work outside IR35 on a commercial, B2B basis. And as we saw in the public sector, it wouldn’t surprise to me to see a quick recovery in the number of outside IR35 engagements as more and more businesses realise their projects and programmes can’t go without, especially as the UK’s economic recovery matures.
So contractors, agencies and others in the contractual chain might be wise to expect companies adopting more intelligent approaches to hiring contractors, perhaps by using an IR35 assessment tool or simply by clarifying their processes to ensure that contractors are not unfairly and unnecessarily deemed inside IR35, or the best talent will simply go to where employers are not using blanket bans.
At least that’s been the public sector’s experience, or so the government departmental data indicates. Surely the private sector, more bottom line-orientated, will be following suit, to not only secure the best contractors but to also stop paying unnecessarily for inside IR35 determinations.