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Employment trends from the UK contractor market

Photo of Jade Brar-Haase
Jade Brar-Haase
Posted on 26 Jun 2023 · 10 mins read

This blog looks at the latest data and findings from the annual Kingsbridge white paper and provides an overview of the latest contract market trends

An overview of the UK contractor market

You won’t need us to tell you but it’s been a fairly tumultuous 12 months or so within the employment arena. In that time, and as a result of a number of factors including worsening skills shortages, we’ve seen demand for contract expertise grow significantly, despite a number of challenging legislative changes taking place in the UK. The latest iteration of the Kingsbridge white paper outlines some of the key themes from across the contractor world during this challenging period and surveyed over 2,000 participants working across multiple sectors and industries.

But what does the report reveal about the latest trends in the contract marketplace and, more broadly, the world of off-payroll employment and what does it foresee changing in the coming months?

External factors

Perhaps understandably, a number of major political and regulatory shifts have had a big impact on the contractor market. Since the reform of existing IR35 regulations, limited company contractors and those operating under a Personal Services Company (PSC) have seen a drop in demand as firms err on the side of caution and placed blanket bans on PSC contracts. This action has, in turn, seen many self-employed professionals operating through umbrella firms or becoming permanent employees as a matter of need.

However, according to the Kingsbridge study, there has been an improvement in end client sentiment towards the use of limited company contractors, despite the fall in demand for their skills, as a result of a growing number of opportunities outside of IR35 regulations. In fact, 83% of contract professionals are now working outside IR35, up by 8% on figures recorded in 2021. On the contractor side, 63% of professionals have said it has been straightforward to find roles outside of the regulations in the past few months, while recruiters have said that these types of positions form 58% of all of their advertised roles, representing an increase on last year when only 41% were outside of off-payroll rules. In addition, 52% of recruiters think that positions outside of IR35 will increase in the next 12 months, and end clients seem to agree; with 54% saying they intend to use more limited company professionals this year. Interestingly, almost half of all respondents said they had seen a positive swing in attitudes towards IR35 over the past year.

Employment status determination

Data from the Kingsbridge white paper also revealed that all areas of the hiring supply chain are seeing an improvement when it comes to employment status determination, but only when status determination statements (SDS) have been provided by a third-party independent reviewer. When SDS is not provided by an external party, and HMRC’s CEST (Check Employment Status Tool) is used, the sentiment falls again.

Other findings revealed that 90% of end clients believe that firms who refuse to utilise limited company contractors are restricting access to talent, which may be driven either by demand for specialist expertise or because skills shortages within permanent markets are really beginning to take hold. Businesses are generally positive about the use of contractors with 77% of end clients saying that they are a key part of business growth, but this optimism hasn’t translated to professionals themselves, with under half (46%) saying they are either confident of very confident about the market in 2023. This represents an increase of 3% on results found in 2021, but perhaps not as high as we might expect when reviewing other data points.

An additional 52% of contractors said that they believe contract roles outside of IR35 will be harder to come by in 2023 than they were last year, with professionals saying that current market pressures could lead to a decreasing number of hiring opportunities, or more businesses scrapping projects as belts are tightened. However, this goes against broader trends that have been noted when worsening market conditions often lead to rising demand for contract expertise.

Recruiters, on the other hand, are slightly more positive, with sentiment improving by 6% year-on-year. If opportunities do rise, limited company contractors can be more selective with the roles that they accept with a large proportion (72%) of those surveyed unwilling to work inside IR35 at all, up by 30% on last year’s data. Equally, 62% of recruiters have said that they find it difficult to fill inside IR35 roles in the current climate, and 73% report increasing rates for those taking on positions that fall within IR35. On the client side, costs are higher for those that don’t offer outside IR35 roles. The reasons behind this shift are fairly clear with 46% of end clients saying that the main reason that they don’t engage with more limited company contractors is because of the complexity of IR35 legislation.

The future for UK contractor demand

In the coming months, it seems as if reported trends are set to continue, with half of contractors saying that they believe IR35 roles will be harder to come by in 2023 than they were last year, and a quarter saying they are still concerned about employment prospects. To highlight the mixed picture, 34% of recruiters say that they’re seeing an increase in PSC engagement, 35% are seeing a decrease and 30% say there was no change.

There is equally mixed sentiment when it comes to CEST; with 34% of contractors and 37% of recruiters choosing not to work with a client based on their decision to use the tool, even if it is out of their control. When it comes to end clients, 48% don’t trust CEST and 44% report that the system isn’t clear and does not provide a good user experience. Some respondents also said that HMRC exacerbates this lack of trust by disregarding results in the IR35 dispute process. Andy Vessey, Head of Tax at Kingsbridge 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, they are putting their trust in HMRC’s tool, 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.”

Overall, the data from Kingsbridge paints a mixed picture for the UK contractor market. While the contracting industry has weathered significant issues and overcome challenges like adjusting to major legislative reforms, contractor, recruiter, and end client concerns still persist. Progress is being made, slowly, but such is the uncertain nature of the UK employment market, it’s still likely that contract professionals will be highly sought after for the foreseeable future.

Read the white paper in full here

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