Controversial changes to off-payroll working tax rules have left some oil and gas firms struggling to fill ‘vital roles’, according to new data.
Research by Kingsbridge Contractor Insurance found that half of businesses in the sector said that the reforms were the biggest obstacle to hiring contractors, trumping Brexit and Covid-19.
More commonly known as IR35, the changes were brought in for the private sector by Her Majesty’s Revenue and Customs (HMRC) in spring last year.
Since April 6 2021 the responsibility has been on companies to decide whether a contractor constitutes a full time employee or is indeed self-employed.
If they are deemed to fall within the first category, they have to pay the same amount of tax as a regular employee.
One union boss previously said he had spoken to some offshore contractors that have lost more than half their last wage due to the reforms.
A ‘soft landing’ period was given to help firms adjust to the new way of working, but that finished earlier this month.
Complexity of rules ‘putting businesses off’
Now, more than a year since the changes came into force, the data from Kingsbridge has laid bare the scale of disruption.
It has been a particular nuisance for the oil and gas industry, which relies heavily on contractors to carry out a range of work.
Around three quarters of businesses and recruiters reported that they had seen a reduction in their personal service company (PSC) contractor workforce.
© SYSTEMOn the other side of the fence, around half of freelancers have mulled closing their businesses, retiring, or leaving the UK entirely due to IR35 reform.
Another obstacle facing oil and gas firms working with contractors is an increase in day rates.
The research from Kingsbridge shows that 65% of contractors would try to negotiate an increased rate if placed inside IR35 and deemed to be an employee.
And respondents suggest that this could be up to a 25% increase.
This is already playing out and almost 40% of contractors deemed inside IR35 have seen their day-rate increase in the last year, the data showed, compared to 20% of contractors deemed outside the rules.
© HEMEDIAPaul Havenhand, chief executive of Kingsbridge, said: “We have a unique position in the marketplace to be able to see the impact of IR35 from the different perspectives of contractors, recruiters and end clients.
“The UK economy is being hampered by a severe recruitment crisis, with many businesses within oil and gas struggling to fill vital roles.
“Contractors, as a highly skilled, flexible resource, could be providing a much-needed interim solution to keep things working and avoid major disruption to UK businesses.
“Yet the complexities of IR35 and perceived risks are putting businesses off.”
HMRC tool not fit for purpose
As set out in Kingsbridge’s new whitepaper – “IR35 – One Year On” – half of recruiters in the industry feel that end clients were not well prepared for the tax reforms.
As such “too many companies” are relying on HMRC’s Check Employment Status for Tax tool (CEST), which the insurer says is not up to the job.
Andy Vessey, head of tax at Kingsbridge and an IR35 expert, said: “HMRC was severely under prepared for the private sector reform, and CEST simply isn’t fit for purpose.
“However, there are some signs of positive change. There are more U-turns on blanket bans and contractors are optimistic about their future job prospects.
“To accelerate this change and avoid losing access to the skilled talent businesses need, three things need to happen; firstly, more education is needed to address the issues still being experienced. A better understanding of IR35 would be much healthier for the market as a whole.
“Secondly, CEST must be made fit for purpose and take Mutuality of Obligation (MOO) into consideration
“And thirdly, companies can legitimately hire experienced contractors outside of IR35 but, to do this, the use of purpose-built tools, advice and insurance should be sought. This will provide the right process to mitigate against the perceived risks of hiring contractors.”