Why the energy sector is booming right now and what it could mean for your business
Coronavirus has had an impact on every area of the UK economy for better or worse, and the energy sector is no exception. While there’s been a double-digit drop in oil and gas prices since the pandemic first hit the UK back in March, renewable energy has seen a boom. Recruiters, particularly those that specialise in the energy sector, should be prepared for this rush and skills transference may well be the way forward.
Many contractors that have worked in the sector for decades have been subject to layoffs and are now faced with either stiff competition for remaining contracts – which could in turn drive contractor rates down at a time when having a reasonable income is crucial – or transferring their skills to suit another part of the sector – i.e. renewable energy.
With the private sector IR35 reform just around the corner too, it’s paramount that recruiters are equipped to help their energy sector clients and contractors alike.
Renewable energy industry poised to enter new growth phase
The year ahead promises further growth in renewable energy - while oil and gas continue to face mounting challenges - as utilities and regulators prefer them to replace retiring capacity. Customers will also increasingly choose them to save on costs and proactively appeal to climate change concerns.
Domestic crude supplies declined over 4 million barrels last week in the US, which is also a representative number for the UK market. Refineries also ratcheted up rates above 80% for the first time since March when the coronavirus pandemic led to widespread initial lockdowns, according to an Energy Information Administration report. Gasoline and distillate inventories also decreased.
However, as reported in the Guardian, renewable energy made up nearly half of electricity supplied in the UK over the last 6 months, breaking the previous record set last year.
“The “substantial increase” in the UK’s total renewable energy output was chiefly driven by a growth in electricity generated by solar panels and windfarms which climbed by more than a third over the last year, according to the government’s energy analysts,” the newspaper wrote. “Offshore windfarms powered the largest increase in renewable energy in the first quarter of the year, climbing by 53% compared with the previous year, while onshore wind generation grew by a fifth.”
Adaptability is key for energy sector contractors to stay in work
According to the government’s latest energy source report, wind power generated 30% of the UK’s electricity in the first quarter, beating the previous record of 22.3% set in the final months of 2019. The rise of renewable energy combined with a steady supply of nuclear power, which made up about 15% of the UK generation mix, drove fossil fuel power plants to a new record low in the first quarter. Gas-fired power plants made up less than a third of UK generation in the first quarter compared with over 40% in the first months of 2019, and coal-fired power made up 3.8% of electricity generated in the UK.
While many oil and gas companies have stated that there will be a recruitment freeze for some considerable time, the figures above indicate that a drive in the renewable sector could very well be imminent. It’s also been posited that it could be at least two years before the recruitment of employees is considered, which could be good news for contractors as demand slowly ramps up again as we move towards winter.
Of course, that doesn’t help those that’re dealing with a lack of work right now, but a shift towards renewable energy could well be the key to keeping those self-employed that specialise in energy in work.
Energy sector recruiters need to keep IR35 reform in mind
Of course, another issue that’s just around the corner for many limited company contractors (and, subsequently their end clients) is the private sector IR35 reform. Oil and gas companies, renewable energy supplies, and recruiters in the field alike need to be fully aware and prepared for the IR35 reform, due to be implemented on 6th April 2021. Businesses who have taken significant cost cutting measures will have to be mindful that if they do not take the appropriate measures, they could be faced with an unexpected Employer National Insurance bill from that date.
Unless the business is exempt under the small companies’ rules (turnover of £10.2m or less, balance sheet total of £5.1m or less, 50 employees or less), companies need to understand the impact of these changes and what it could mean for their tax bills.
That said, most contractors are very much outside IR35 and pose no risk to an end client if they get a professional employment status review. When weighing up access to invaluable, flexible specialist skills, taking the time to make sure contractors get a fair determination is a small price to pay.
“It’s now of utmost importance that recruiters and end clients in particular set preparations for the reform in motion, take the time to understand the risks associated by not having the correct processes in place, and educate themselves how to assess contractors fairly,” warns Head of Tax Andy Vessey. “Don't shoot yourselves in the foot with gross risk-aversion - UK companies will absolutely need to utilise flexible workforces now more than ever to get the economy engines firing again in a post-pandemic landscape.”
Get ready for the IR35 reform with Kingsbridge
It’s crucial that all points of the supply chain understand their IR35 position with every contract taken on or filled. Getting a professional IR35 employment status determination is pivotal to making sure you know where you stand, while IR35 investigation insurance is also a worthy investment and can provide a lifeline should you fall foul of an HMRC enquiry.
To find out more about IR35 Protect, click here to download our guide. For more information on how Kingsbridge can assist your business in preparing for off-payroll 2021, or for a demo of our award-winning status determination tool, please email IR35@kingsbridge.co.uk, or give the team a call on 01242 808740.