IR35: What new contractor rules might mean for the UK IT job market

New tax rules for contractors in the UK are likely to have a big effect on the tech job market, both on the business and contractor side. The rules — known as IR35 — mean that some businesses which currently use contractors will have to decide their status and whether they need to become full-time staff.

That means they would have to pay national insurance and businesses would have to provide benefits like paid holidays. According to The Register, it is estimated that about 170,000 self-employed contractors will be hit by the changes.

That’s important news for the IT industry, where contract work is prevalent and helps hold many companies together. And a new study by Brookson Legal, a law firm that specialises in IR35 advice, has found that businesses might have to take proactive steps to avoid a “brain drain”.

The survey

The big takeaway from Brookson’s survey is that three in five skilled UK contractors said that, if a business that had hired them for contracting work decided that they were caught by the new IR35 rules — and therefore had to be considered full-time staff — they would consider going elsewhere.

30%, meanwhile, said they would consider stopping contracting work altogether and around one in eight would consider retiring or moving abroad to work. The upshot of all that is that the new rules are going to have a big impact. That is arguably especially true in the IT sector, where, as we have noted before, it is very much a candidate’s market.

What businesses can do

Brookson also asked contractors whether they would ask for a pay rise and employee benefits if they were designated as full-time staff. Half said that they would. That means that businesses hiring these contractors may well have to shell out more than they already are just to keep their contractors on board.

As well as making financial preparations, Brookson suggests it is important for businesses that rely on contractors to take practical steps — both to prepare themselves and to reassure contracted staff.

Contractors fears about IR35 are fuelled, Brookson’s survey says, by a “lack of trust” that hiring businesses will be able to manage their new responsibilities under the law. Only 3% of contractors believe that the private sector will be ready when the new rules come into effect in April 2020 and less than a quarter trust that their hirers will make the right assessment of their IR35 status, Brookson said.

Looking at it from another angle, 80% of surveyed contractors said they are more likely to work with a company that advertises roles that are outside of the IR35 rules, and which has proper policies and procedures in place with regards to the new law.

“This suggests that the companies who do demonstrate reasonable care in making their assessments could have a competitive advantage when it comes to attracting talent,” Brookson says.

Brooksons managing director, Joe Tully, said: “The fact that 59% of contractors would consider moving to another business if found to be inside IR35 shows how important it will be to get these complex assessments right. The outcomes will not only impact contractors’ way of life, they have operational and financial consequences for businesses too.”

It’s clear, then: hiring contractors in the IT industry is set to change. Recruitment experts like those at Redcat Digital can help guide you through that process — so get in touch now.