It would be fair to say IR35 has not had a smooth implementation into the private sector. Having come into force within the public sector in April 2017, it was due to enter the private sector in 2020 but was delayed by a year due to the pandemic. In 2022, IR35 was scrapped completely but then quickly reinstated by the Government. However, it now feels that it is here to stay.
HMRC introduced IR35 as it was felt that there were a number of contractors working through intermediaries, often their own limited company’s, who were in fact ‘disguised’ employees not paying the same level of tax and National Insurance Contributions (NIC) as those who were often doing identical jobs on the payroll.
As the government puts it “The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees.” Some suggest these changes will bring in an additional £1bn in tax revenue per year.
This meant the responsibility shifted from the contractor to the client in determining the IR35 status of a Contractor and impacts the taxes which are due.
Although HMRC has created the online Check Employment Status for Tax (CEST) tool, the process of status determination is far from straightforward. Despite the number of webinars, guidance, and resources from HMRC, the large number of high-profile court cases both being won and lost by HMRC is testimony to the difficultly in correctly defining it.
The Health and Safety industry has long had an established contractor market, partly due to the ever-changing legislative landscape coupled with project-based work environments in high-risk industries such as construction and renewables. These and other factors create an environment where clients need quick access to health and safety support which is critical to business activity.
The impact of IR35 thus far has had multiple impacts for both contractors and clients generally increasing tax for both. “If the rules apply, Income Tax and employee National Insurance contributions must be deducted from fees and paid to HMRC. In addition, employer National Insurance contributions and Apprenticeship Levy, if applicable, must be paid to HMRC by the person who pays the worker’s intermediary.”
The real financial impact for both employers and contractors is challenging to pinpoint as there have been major economic changes in growth, inflation and levels of unemployment since the implementation of IR35 in the private sector. These changes have led to fierce competition for talent thus, it is difficult to compare like for like day rates in health and safety contractors with pre and post-IR35 changes being made.
However, we are generally seeing some sharing of this increased tax burden. Candidates are ideally seeking a 20% increase in day rate to equalise the impact of IR35 but are often settling below this if an attractive, long-term contract is offered. Ultimately, the market will dictate this rate and in the most specialist areas or more senior positions, contractors seem more likely to achieve the 20% rise in day rate. You can now expect the day rates for an Interim Health and Safety Director to shift from £900 - £1000 up to £1200 if ‘inside IR35’.
For more junior roles, clients are looking for alternatives to a day rate increase including moving contractors to fixed term contracts. Although the tax implications are similar, the base salary is generally much lower than the cumulative day rate which in turn has challenging implications when trying to attract candidates in a busy market.
Many of the middle management level contractors operating at site level with job titles of Health and Safety Advisor and Health & Safety Manager have seen their rates increase, whilst others have not. This has removed the financial incentive away for many, who see little benefit from the risk of being a contractor and have sought permanent positions. This reduction in supply may see an increase in day rate for those remaining in the market at this level.
James Cox leads the Contract Recruitment function at Irwin and Colton, contact James on firstname.lastname@example.org or 01923 432 687. Irwin & Colton are a specialist Health and Safety recruitment company, based in the southeast of England we recruit across the UK. We recruit all roles in the health, safety, environment and sustainability industry.
Disclaimer……Irwin and Colton are an amazingly good health, safety and sustainability recruitment company we are not tax accountants! Although all effort has been made to ensure accuracy in the blog above, it is not in any way tax advice and can not be used as such, it is simply our thoughts and views.