Contractors can expect an action-packed 2014, with skills shortages, shale gas development, improved service provider standards and wooing by politicians all set to make the year ahead a constructive one.
Less positively, contracting’s experts warn of escalating IR35 enforcement, concern over the new false self-employment legislation, and fears that Europe’s ongoing economic issues will impact on contractors both at home and abroad.
Interestingly, our panel of experts seems untroubled by any potential outcomes of the House of Lords Select Committee on Personal Services Companies (PSCs) inquiry, despite the pressure the government is under to scrap IR35.
IR35 activity will escalate during 2014
Qdos Consulting’s operations director Seb Maley kicks off the predictions for 2014 by warning that the taxman is likely to escalate IR35 activity: “HMRC has set up store to deal with an increasing number of IR35 reviews, and we anticipate the number of investigations to grow, particularly in the public sector.”
ContractorCalculator CEO Dave Chaplin is less certain that IR35 case numbers will increase but believes that contractors should keep up with IR35 best practice. He urges contractors to: “Spend money getting your contract sorted out, buy insurance, and take steps to ensure you can mount a decent defence if HMRC comes knocking.”
Maley’s view is that the review of the new IR35 framework introduced in May 2012 promised by HMRC and the IR35 Forum is likely to result in only minor changes to the way the contentious legislation is implemented.
However, he notes that urgent action is required in the public sector: “The business entity tests (BETs) were only ever meant to be a risk assessment tool, and not an actual IR35 test. Unfortunately, that’s how many public sector organisations are applying them, to the serious detriment of contractors.”
Chaplin agrees, adding: “HMRC may tinker with the BETs’ scoring and questions, but on the whole for most contractors we expect it to be business as usual in 2014.”
The false self-employment legislation will be amended, not dropped
Chaplin and Maley also agree that the false self-employment legislation proposals will be changed to exclude limited company contractors, but will still go ahead. “The proposed new rules will be the focus of concern of the contracting community in the first couple of months of 2014,” says Maley.
Chaplin adds: “The problem HMRC has, that was well explained by Martin Hesketh in the third Lords evidence session, is that policymakers are trying to apply legislation to a small part of the flexible workforce, but can only enact legislation that covers the whole flexible workforce.
“That ranges from low paid temporary workers to highly paid consultants. There are no dividing lines along the way. In its current form, the false self-employment legislation would be highly damaging to UK Plc and many small businesses that provide knowledge-based services. We don’t expect it to go through in its current form, but the worry is what will be put in its place.”
Compliance will take centre stage
Derek Kelly, managing director at Parasol and ClearSky Accounting parent company Optionis, maintains that compliance within contracting’s services sector will take centre stage during the coming year.
“Umbrella contractors are becoming increasingly aware of the importance of choosing a legitimate, compliant provider that will do the right thing and act to protect their interests in the long term,” says Kelly.
He believes that the legislation to combat offshore umbrellas, due to come into force in April 2014, will accelerate the trend to greater compliance: “Career contractors who work for compliant, UK-based employment providers have nothing to fear from the offshore legislation or the government’s plans to address onshore ‘false self-employment’.”
Kelly adds: “Recent publicity around zero-hours contracts means umbrella contractors are keen to work for a provider that offers guaranteed hours of work. Similarly, auto-enrolment means more and more career contractors want to know that their employer has a workplace pension scheme.”
Skills shortages and shale gas development
Kelly predicts that skills shortages will worsen in 2014, with a corresponding improvement in contractor prospects: “It’s no secret that the UK is facing skill shortages in several sectors and industries – notably engineering, advanced manufacturing, oil and gas, digital media and data analytics.
“Contractors who possess the technical skills to meet growing demand in these specialist areas will be able to command higher rates. Indeed, 2014 could well prove to be the year of the ‘niche’ contractor.”
And he suggests that shale gas development “could energise the contractor market” and that “fracking represents a huge opportunity for contractors with the right skills”.
“Predicting a contract boom in 2014 would be hasty and premature,” continues Kelly. “However, with fracking licences due to be granted next summer, 2014 should be the year that the seeds of future growth are sown.”
Contractors will become the focus of “main parties to fight for SME vote”
With an election looming in 2015, PCG’s director of policy and public affairs Simon McVicker forecasts that contractors are now a large enough constituency to merit targeting by the main political parties.
He explains: “As we begin the long build-up to a general election, the three main political parties will fight hard over the small business vote, which of course includes independent professionals (iPros).
“The fact that there are now over four million self-employed people makes it a significant proportion of the voting public. And one which traditionally can be swayed by attractive and progressive policies that help those in business on their own account get on.”
As we begin the long build-up to a general election, the three main political parties will fight hard over the small business vote, which of course includes independent professionals
Simon McVicker, PCG
“European issues to the fore”
However, McVicker warns that we have not heard the last of the Eurozone crisis, and what happens within the currency union could have implications for contractors, including those who intend to remain contracting in the UK
“The economic situation across Europe will remain in flux and the knock-on effects will be felt in the UK. With countries such as Spain and France set to struggle well into 2014 and beyond, this will have implications for British independent professionals – whether they take contacts abroad or not.
“The impact of incoming legislation around immigration is sure to be felt, although how severe the ramifications will be is almost impossible to predict. This, and other populist issues in the same vein, should also see an increase in the influence of the UK Independence Party (UKUP), although judgment on the party’s success in real political terms cannot be made until the election proper in 2015.”
Little to fear – or hope for – from the Lords’ PSC inquiry
Despite his fears for what changes 2014 might bring to the false self-employment legislation, Chaplin is less concerned about the outcomes of the House of Lords Select Committee on Personal Services Companies (PSCs) inquiry.
He does believe that some important messages have come from the evidence sessions: “The taxman has a bee in his bonnet about people providing knowledge-based services and seems to think that they should all be considered employees, and so stump up employee taxes.
“As the Federation of Small Business’s (FSB) witness quite rightly pointed out to the Lords, there should be no difference between selling knowledge to selling widgets. The three evidence sessions at the end of 2013 highlighted that the whole concept of ‘false self-employment’ and ‘disguised employment’ is complete nonsense. Contractors should have the freedom to engage/contract in any manner they wish, and then pay their taxes according to the law.”
Chaplin concludes: “Whatever challenges 2014 throws up I’m confident that contractors will show their usual resilience and creativity in finding solutions, the same way they deliver the solutions that keep the UK’s businesses and public services functioning smoothly and profitably.”