According to new research released by Cool Company, the digital payroll solution for contractors, nearly half of all contractors (46%) have increased their client rates in 2022, with more than a quarter (27%) expecting poor cash flow to be among the biggest challenges they face in the next 12 months.
The survey, conducted to ascertain how contractors are managing a year on from the implementation of the IR35 legislation, took in the views of 500 contractors. And found that although almost half (45%) were feeling positive about contracting as a whole, most had had to change the way they work to ensure the viability of their business. Including changing their client rates.
Only 37% said that their rate had not changed, while 6% said their rate had increased a lot and 15% reported that their client charge rate had decreased, leaving 2% saying that their rate had decreased a lot. And it seems that in many cases, these changes have been driven by cash flow issues, highlighting the problem contractors still have getting paid on time, with contractors either increasing their rates to cover the deficit, or decreasing them in a bid to attract more clients.
Other areas of concern highlighted in the survey were the rising costs of materials and labour, which has impacted 22% of contractors so far. And the difficulty of finding new clients (22%) as IR35 has impacted the number of businesses willing to navigate the new legislation and work with contractors. On the whole, however, only 16% of the contractors interviewed were feeling negative about contracting.
Kris Simpson, Cool Company’s Head of B2C Business UK said, ‘The implementation of IR35 was extremely concerning for many contractors. But although it’s not been easy, the impact has not been as devastating as many first feared. And the majority of contractors have found ways to work with the legislation. Whether through the use of umbrella payroll companies, smaller sized clients, or overseas clients.
‘The concern now is that if cash flow continues to be problematic, contractors are going to be faced with increasing their prices further, making their services a less viable option for the general business community. What is certain, is that contractors will choose to work with companies offering reliable and fast payment, as chasing overdue invoices and worrying about payment are both uncertainties contractors could do without in the current climate.
What we don’t want is contractors re-evaluating their career choice, again. With the overall contribution to the UK economy by contracting and freelancing professionals resting at around £119 billion , that could have a dramatic impact on the economy.
‘While the majority of contractors are still feeling positive about the industry, business owners need to take steps to ensure that invoices are cleared promptly and that contractors are treated as professionals, if they wish to secure their services into the future.’
Cool Company’s Tips for Navigating IR35 in 2022
The most important issue for contractors is to be sure of their status. If your clients do not fit into the Off-Payroll Working Rules (OPWR) criteria, you don’t need to worry. Right now, the rules don’t apply to you. But if you are working with the bigger brands, you need to ascertain whether you really are self-employed, or if your terms could reasonably be viewed as employment. So ask yourself:
- Are you working with a range of clients, or just a single employer?
- Do you provide your own equipment, or is it provided by the business?
- Who decides when and where you work? Can you refuse work that doesn’t fit within the terms of your original contract?
- How long is your contract?
- Do you receive any employee benefits?
- Do you have the right to terminate your contract?
- Is there any degree of financial risk to your work? Does payment depend on your work being completed to a requisite standard? Or are you simply paid the same fee regardless of the work you produce?
If your answers to these questions indicate a more ingrained and permanent relationship with the business you work for, there is every chance that you may be considered an employee by HMRC.
If you’ve decided to stick it out and find an IR35 workaround, there are two main paths that are typically being pursued.
Exploring new territories
IR35 does not stretch to cover overseas employers. And for those with skills that can travel, there is literally a whole world of opportunity waiting. It’s a route that can be quite difficult to travel alone – finding contacts and opportunities can be time-consuming. But with agencies, umbrella companies, and contract marketplaces smoothing the way, it’s an avenue well worth exploring.
Stepping under the umbrella
For thousands of contract workers and businesses, umbrella companies have provided a pain-free solution to IR35. Working as an intermediary between businesses and contract talent, they take care of the red tape that IR35 has unspooled. Managing contracts, payments, and compliance, allowing contractors and their clients to return to their old, familiar way of working.
Dodging the dodgy umbrella companies
Until quite recently, umbrella companies had a bad name, and in some cases, rightly so. However most umbrella companies now adhere to high ethical standards and take steps to ensure that they are compliant in every way. Using HMRC-compliant software to manage client accounts, and doing their best to further the interests of everyone they work with. But there are still some quick-buck-seekers out there. And perhaps more than ever before, it’s really important for both businesses and contractors to find compliant, accredited umbrella companies to work with.