What Does The ‘Imminent’ Future Hold For Your Contractor Status?
We’ve been talking about this for a while now. But like most other things in life, the majority of people only react when the warning lands on their doorstep having transformed into an inescapable fact.
In April THIS YEAR everything will change
In less than two months, all contractors in the UK will be affected by the change. IR35 follows the same rules – but responsibility for determining contract status will be handed over to the end-client of your services.
To enable us to help contractors prepare and fully understand the consequences and expectations of their future we held a survey of our own contractor clients: and these were the results.
The question we asked was: Where do you see your personal situation being after the April 2020 IR35 changes?
This is what you told us:
- 56% of contractors saw themselves continuing to work through their PSC (Personal Service Company) outside of IR35 (ie. operating as a company, paying themselves a salary and drawing dividends)
- 8% of contractors believe they will be contracting through their PSC, being caught inside of IR35 (ie. treated as an employee of their end client and therefore subject to PAYE and subsequent taxes)
- 9% of contractors intend to start operating through a 3rd party umbrella company that acts as an intermediary between them and their client and provides payroll services
- 13% of contractors said they would opt for becoming full-time employees; giving up the benefits of being freelance while simplifying their tax and payroll administrative burdens
- 14% of contractors said they would retire altogether or chose some other form of income-generating venture to pursue.
The results got me wondering about the wider contractor market, so I did some further digging. Through research and conversation with colleagues and industry peers, it would appear that contractors sit between three similar sized groups. A third plan to continue operating through their PSC, the second third will seek an umbrella solution and the final third opting for taking a permanent role and leaving the contractor market.
What these results tell me
I believe one of the aims of HMRC is to remove contractors from the market (and increase the tax take). These changes will certainly weed out the less experienced contractors – those who are not yet considered industry experts. Contracting is set to be far less desirable until you are well established and can command contract terms that continue to offer you the remuneration that is in keeping with your skills and experience, as well as the flexibility of contracting. I am pleased to see very few of our clients by comparison to the general market are considering full time employment.
What is obvious to me is that there is no clear consensus on the way forward, and to be honest I did not expect there to be – after all, every contractor’s circumstances are different. What is apparent, is that Meades clients are heavily weighted towards continuing to operate through their PSC and I don’t believe this is naivety, in fact it is more likely the opposite.
Most contractors enter the market and choose the perceived security of a large accountancy practice who look after thousands of contractors, believing they will receive specialist advice from experts. With a few years’ experience under their belt, most contractors see that the cookiecutter approach of larger accountancy firms is not enough. Experienced contractors look for the support they need to get the most from contracting. Smaller firms, like Meades, can offer truly tailored advice on remuneration, VAT, expenses, pensions, investments and more – all with the aim of helping contractors benefit financially from taking the risks associated with running your own company.
The contractors we support tend to be more established, often with long term relationships with end-clients or agencies, and are more tuned in to what will be required to continue to operate in the most profitable way. Clearly PSC is the way to go where possible – and only those who will be forced to use an umbrella by the end-client will do so.
Will you be forced to take employment or work through an Umbrella?
Potentially, yes. Here’s why:
By passing the responsibility of IR35 assessment to end-clients, HMRC have guaranteed that many of the large firms employing contractor services will opt for a blanket approach to minimise their risk and burden of due diligence – I expect to see more end-clients insisting on contractors using an umbrella.
I can see the commercial sense of taking this approach, given the huge burden HMRC are placing on end-clients who use the services of hundreds, if not thousands of contractors. For contractors however, this is wholly unreasonable – but as we know, HMRC are not in the game of fairness.
In reality, if contractors are forced down the umbrella route, the remuneration package they negotiate will need to take into consideration the burden of tax, NI and umbrella fees.
Taking a stand
There is nothing we can do as an industry to change the way IR35 will be managed, but we must work together to hold on to your rights as independent contractors. As April approaches I am increasingly concerned by the number of conversations I am having with contractors who are being railroaded into working through specific umbrellas.
I would like to invite you to connect if you have:
- Been told to use a specific umbrella, or one of a short list of umbrella providers
- Been stonewalled by your agency when questioning your right to use an umbrella of your choice
- If you are unsure of the implications of using a specific umbrella.
I hope to learn more about the way the contractor industry is being reshaped, so I can help you to continue to operate as an independent contractor and make the most of the money you earn.