Inside vs Outside IR35 a Positive Outlook
Operating through a Personal Service Company (PSC) and working outside IR35 provides contractors with a wealth of benefits.
For instance, a PSCs invoice will be paid in gross with no tax or National Insurance Contributions automatically deducted. This allows more freedom to claim for various expenses, such as commuting to their client’s site. Additionally, working outside IR35 also provides greater control over their working arrangements, as contracts will tend to have a start and end date, giving more freedom to plan their workload.
However, since the introduction of IR35, many businesses have been hesitant to engage limited company contractors or PSCs. Instead, businesses have made blanket decisions not to engage with PSCs and Ltd companies.
The good news according to Kingsbridge research, that corporate sentiment towards limited company contractors could be shifting. We recently surveyed nearly 2,000 contractors, recruitment businesses and end clients. More than half of the recruiters participating stated that their end clients are reconsidering blanket bans on Ltd companies and PSCs – a 30% improvement from last year.
Despite the backdrop of political and economic instability during 2022, the responses collected by our survey suggest attitudes are once again warming towards engaging limited company contractors. In this blog post, we’ll explore how and why businesses are changing their stance on PSCs and working outside IR35.
Sentiment shift in favour of PSCs sees rise in outside vs inside IR35 opportunities
PSCs have long been a topic of contention for end clients. While operating outside vs inside IR35 can pose some compliance challenges, they can also provide end clients access to a flexible workforce with specialist skills and expertise. With this in mind, sentiments around PSCs are shifting.
Our study showed that 83% of contractors surveyed are now working outside IR35, which is an increase of 8% from last year. Market pressures such as a lack of working talent and the additional costs that come with inside IR35 engagements have been factors in causing the market to change, resulting in a rise in outside IR35 opportunities.
The finding supports the assessment that more end clients are becoming open to hiring PSCs, and that 63% of contractors report that it’s been ‘easy’ to find outside IR35 contracts over the last 12 months. In addition, 54% of end clients said that they intend to use more limited company contractors in 2023.
Disparity between contractors and recruiters on inside vs outside IR35
Despite the seemingly positive outlook for limited company contractors, there appears to be some conflicting opinions between recruiters and the contractors themselves. While recruiters are upbeat about the wealth of roles for PSCs, contractors are instead expressing a lack of optimism about their opportunities working outside vs inside IR35.
The survey found that 52% of contractors believe that outside IR35 roles will be harder to come by in 2023 than in 2022, and 25% are concerned about their business prospects. The lack of confidence from contractors could come as a direct result of the economic uncertainty surrounding the UK.
The current market pressures are a worry for contractors, who believe there will be fewer hiring opportunities or businesses will scrap projects as belts are tightened. However, this type of market could actually result in a rise in temporary workforce needs as businesses struggle to retain permanent staff.
In contrast, there was a 30% increase in the number of recruiters saying they were seeing an increase in PSC engagements.
End clients are also showing more enthusiasm for limited company contractors, with 90% believing that organisations that refuse to engage limited company contractors are restricting their access to talent.
Status Determination Statements satisfaction is on the rise
Evidence suggests that there’s growing understanding and positivity around Status Determination Statements (SDS). The SDS is an essential document for IR35 compliance. It clarifies contractors’ tax status and obligations while ensuring the end client has done their due diligence in determining a contractor’s status.
Figures in the whitepaper show that 80% of contractors reported that their SDS provided enough detail compared to 77% last year. Meanwhile, 83% of recruiters reported that the SDS was clear compared to 79% last year. However, problems can arise in the SDS process when CEST (Check Employment Status for Tax) is used.
Andy Vessey, Head of Tax at Kingsbridge Insurance, said: “We have seen for ourselves that some larger end clients with an experienced tax team favour CEST to deliver reliable status determinations. This may be due to the fact that the tool is free to use and convenient.
“Nevertheless… CEST should be, at best, used as a rough guide to determine status, but it is not, by any measure, a conclusive answer to whether IR35 applies.”
Using the HMRC’s CEST tool can often cause confusion as the tool provides little context as to whether someone falls outside or inside IR35. As a result, this can be troublesome for end clients as, in most cases, enquiries would typically only be opened after the fact, making it hard to correctly determine whether someone was classed as outside or inside IR35.
The positive feedback on the status determination process drops significantly where CEST has been used. In fact, the number of recruiters involved in status determinations falls to 51% when CEST is used.
Recruiters whose clients use CEST also reported feeling more negative or neutral about the future of outside-IR35 opportunities, with only 36% saying they expected more positive changes from clients compared to 60% from those whose clients use independent status tool providers.
Tailored insurance solutions for outside IR35 contractors and PSCs
Here at Kingsbridge, we offer specialised insurance cover that addresses the unique risks and challenges faced by contractors operating through PSCs. Policies are tailored to the risks associated with limited company contractor businesses, as well as IR35 Protect Insurance to cover your tax liabilities, we also offer Professional Indemnity, Public Liability and Employers’ Liability insurance.
We can also provide you with expert IR35 guidance on contract negotiations and compliance, ensuring your contract arrangements are appropriately structured and compliant with IR35 off-payroll working rules. To find out more or get a quote today.
To access the full whitepaper, click here.