UK tech freelancer numbers down for first time in 5 years since IR35 tax reforms hit public sector

Could drop further, depending on how zealously it's enforced

After a boom in IT contractors over the last decade, the number of freelance techies working in the UK dropped last year in the wake of public sector off-payroll working reforms.

According to Office for National Statistics (ONS) data, there was a 2.4 per cent fall in IT contractors to 121,989 in 2018 compared with the previous year.

Following the impact of IR35 reforms in the public sector, many contractors have been moved into permanent roles or umbrella companies, said contractor accountancy firm Access Financial, which made the ONS submission.

The IR35 rules ensure that individuals who work alongside PAYE staff pay similar income tax and national insurance contributions as employees. However, as contractors, they are not entitled to the same holiday and sick pay benefits.

In April 2017, the UK government reformed the rules in the public sector, shifting the responsibility for determining employment status from workers to the public authorities. From April 2020, the same rules will apply to the private sector.

The changes have been blamed for a number of delays to public sector IT programmes due to freelancers quitting.

Over the last 10 years, the number of IT contractors has grown on average by 8 per cent per year-on-year, from around 75,000 in 2009, according to the data. The only drop in that period was in 2014.

Kevin Austin, chief exec of Access Financial, noted the number of IT contractors jumped by 64 per cent between 2009 and 2017, due to an increase in demand for those skills.

He said: "Many public sector IT contractors sought work elsewhere when the off-payroll working rules came into force. From April next year their options will be limited. There have already been reports of large-scale users of contractors, such as banks, saying they will not engage off-payroll workers from next April but that may turn out to be a knee-jerk reaction similar to what was seen in the public sector when the rules were first introduced."

Earlier this month Barclays told contractors that "as a consequence" of IR35 it "will no longer engage contractors who provide their services via a personal services company, limited company or other intermediary".

Lloyds Banking Group is taking the same tack as Barclays, and HSBC and pharma firm GSK are also looking closely at the way they work with contractors to limit their financial liability post April.

Austin added: "We could well see a more dramatic fall in the number of IT contractors next year. In those cases where the IR35 status of contractors is borderline, private sector organisations likely will err on the side of caution and refuse to engage those contractors off-payroll. Despite some of the claims being made, however, it seems unlikely that the rules will be the death knell of contracting.

"Much will depend on whether HMRC takes tough enforcement action and publicly hauls an organisation over the coals. If that happens, it likely will have a chilling effect on the use of contractors. If enforcement action is not forthcoming, the impact of the reforms could be more limited." ®