IT sees drop in freelancers after new tax code implemented

The number of freelance IT contractors has dropped following tax reforms in the UK. This is despite the sector experiencing an overall growth in the last ten years in general.

New rules from HMRC have impacted on the way that freelances pay tax, FreeAgent, a cloud-based accounting website, says “IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name. If a contractor is operating through an intermediary, such as a limited company, and but for that intermediary they would be an employee of their client, IR35 kicks in.”

This decision has pushed many freelancers into permanent roles and there is also a belief that the changes have led to delays in public sector IT programmes.

Data from the Office for National Statistics (ONS) shows that there was a 2.4% drop in IT contractors in 2018 when compared to the previous year.

“Not a surprise”

Richard Mort, Director at Edge Testing Solutions, comments on what’s happening now in the private sector:

“This news is not a surprise. At Edge Testing Solutions, we are seeing a slow but steady awareness dawning on our client base that IR35 could severely impact and possibly impede enterprise growth through the introduction of yet another business risk.”

“The contractor market has for years, providing a readily available source of expertise for the IT sector. It has provided the niche technical skills, available for as long as the client requires and typically at short notice thus supporting reactive as well as proactive resource demands. However, IR35 mitigates these advantages and for some organisations makes using contractors an unpalatable approach.” Mort added.

The alternative

He suggests that to tackle this issue, firms should outsource on a proactive basis. Another alternative that Mort suggests is for organisations to “grow their own”. The director says, “This focuses on building up a permanent internal test pool to replace the contractor model using graduates or apprentice-based schemes.”

Mort continues that the advantage of using contractors is that it gives enterprises the opportunity to quickly and effectively take on testers at a short notice.


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