Last week we were delighted to host a Q&A session for senior interim communications managers with Andy Chamberlain, Director of Policy for www.ipse.org.uk – the Association of Independent Professionals and the Self-Employed. The conversation ranged from the state of the market during Covid-19 and beyond, to the impact of the IR35 regulations, different payment and contract options and the practical help provided to interim workers by IPSE.
The self-employment market – a snapshot and current dynamics
Andy began with an overview and summary of some key trends in self-employment in general over the last two years. Prior to the Covid-19 pandemic, self-employment had been steadily rising since the financial crash to a peak of over 5 million at the beginning of 2020, representing 15% of the total labour market. As a result of the first lockdown this dropped dramatically to 4.2 million. The number is now on the increase at over 4.3 million and will continue to recover as the economy improves, as the move to self-employment is a long-term structural change. However, there are some additional pressures on the market that could have an impact on the appetite for self-employment:
- While there was support for the self-employed in the form of the SEISS grant, which IPSE campaigned for, professional interims with Limited Companies weren’t able to access it. Will this put people off setting up their own businesses?
- The self-employed have traditionally enjoyed flexibility and control over where and when they work. Post-Covid, many organisations are offering flexibility and hybrid-working patterns to full-time employees, so does this negate one of the main attractions of self-employment?
Despite this, Andy believes the market will recover and people will still be attracted to self-employment but there is no doubt the pandemic has had a seismic effect.
The impact of Covid on individuals
In June 2020 IPSE conducted research with Edinburgh University to assess the immediate impact of the pandemic. 74% of those surveyed lost income during the first lockdown, and among those the average was 76% reduction in income. As a result, 69% had serious cashflow problems, and 91% of people surveyed couldn’t access the self-employed support grant. Mental health issues and stress levels increased by 80%.
The picture is looking more positive now. IPSE runs a quarterly index to assess confidence among freelancers and in Q2 of this year, confidence was at it’s highest since well before the pandemic (concerns around Brexit and IR35 were impacting confidence towards the end of 2019).
It’s now clear that the reforms to IR35 (off-payroll working) in the private sector, which were implemented in April 2021 following a year’s stay of execution, have had a major impact on the sector. Many interim managers in contracts went through a ‘blanket’ determination and were either compelled to contract through umbrella companies or terminated their contracts, creating a potential skills gap.
While headline day rates don’t seem to have been adversely affected, in many cases the additional employment costs – employer’s NI, holiday pay, apprentice levy, workplace pension etc – are deducted from the contractor’s gross rate when they contract via an umbrella company. So not only does the end client avoid any increase in budget, the contractor ends up footing the cost of full employment without the benefit of full employment rights.
Challenging an ‘inside IR35’ determination
Employers are required to take reasonable care over assessments and contractors have the right to challenge a decision. Andy quoted research that IPSE has carried out on where members have challenged an inside IR35 determination. Of those surveyed, 77% had challenged their determination and 17% had managed to get a reversal.
IPSE is advising members to use HMRC’s own CEST tool as a first port of call https://www.gov.uk/guidance/check-employment-status-for-tax. If that indicates an ‘outside’ determination you can share this evidence with employers.
Main grounds for challenge:
- Proving a right of substitution – this can be difficult in the world of corporate communications where clients ‘buy’ the unique blend of skills and personal approach of an individual to undertake complex, strategic work. However, substitution is a relatively concrete basis to challenge on.
- If personal service is required, then how much autonomy do you have in the work you do, ie. are you under direction and control of the client. This is possibly a stronger basis to challenge on
- Mutuality of obligation is also used but is a highly contested and nebulous concept – difficult to prove
- The nature of your Ltd Co – are you taking on financial risk, using your own equipment, have your own website etc. Although these tend to be secondary factors there is a case going through the courts that hinge on these at the moment.
Andy flagged that IPSE offers a contract review service and there are other independent IR35 specialists who offer this.
Contracting via an umbrella company
Andy pointed out that the sole reason for inserting an umbrella company into the contract process was to pass liability for deducting the correct tax and NI down the supply chain. The result is that interim workers become direct employees of a ‘faceless’ umbrella company without any of the benefits or rights of employment as you would normally understand them – and without the end client having to assume these obligations.
Service levels vary significantly in the umbrella payment sector and in some cases clients will mandate a particular umbrella to be used, but Andy recommended contractors take care to ensure the umbrella they choose is fully tax compliant and transparent in their dealings with contactors.
IPSE has also advised its members to keep Ltd Companies running so that they have the ability to switch to working outside IR35. Some umbrella providers offer both umbrella and Ltd Company solutions so are able to help contractors navigate between different determinations.
Room for optimism
Several of our participants had been required to move from Ltd Company contracting to an umbrella provider at short notice or take fixed-term contract (ie. on the client’s payroll) since the IR35 changes came in. This reflects our experience at Ellwood Atfield, where all the contract briefs we’ve taken in 2021 have either been fixed-term or day rate via an umbrella company.
However, one of our participants explained that her current client had put a group of contractors through a thorough audit and given them an outside IR35 assessment enabling them to work through their Ltd Companies. Andy reflected that there is room for optimism as the dust settles and organisations understand what is required of them to make the correct assessments and therefore comply with the legislation. He suggested that contractors make sure they have a full paper trail to evidence any decision to work outside IR35, involving all parties – end client, recruitment agency and any other companies in the chain – which would make it very difficult for HMRC to challenge.
Advocacy for independent professionals and the self-employed
During the first lockdown, IPSE was instrumental in getting the SEISS scheme set up and as we emerge from the pandemic Andy continues to campaign across a range of issues to keep self-employment on the Government’s agenda. Alongside this advocacy work, IPSE offers a range of services to its members including tailored insurance cover, access to template contracts and other paperwork, and the opportunity to get expert advice on a range of professional issues and concerns.