Will IR35 Widen the Construction Skills Gap?

Across the UK’s construction industry, 83% of managers believe there is a persistent skills gap. It’s already hindered the Government’s pledge to deliver 300,000 homes by mid-2020 and looks to affect plans to reach net-zero carbon emissions by 2050. While efforts to draw more people to the industry are underway, over half of the managers Search Consultancy spoke to believe the IR35 reforms will cause significant damage.

Contributing £90bn to the annual GDP and employing over 2.93 million people, the sector suffers from an ageing workforce. Currently, 15% are over 60 with a further 750,000 set to near retirement age over the next 15 years, showing the risk faced by the industry if new solutions are not found.

With the IR35 deadline now passed, businesses have inherited the responsibility of assessing off-payroll employees and determining if they fall inside or outside the new reforms. Research from Search Consultancy found 56% of managers within the industry believe the changes will immediately widen the skills gap, as employers veer on the side of caution when recruiting contractors.

The initial confusion created by the legislation, combined with a more cautious approach to finding talent, is leaving companies with a smaller talent pool to choose from. This issue is only being worsened as candidates move to more stable sectors offering competitive pay.

It is impossible to determine the impact changes to IR35 legislation will have on the industry just yet. However, the concern we have with companies going down the route of a low-risk blanket ban on personal services companies (PSC) means there could be restricted access to particular unique skillsets. Workers could also be panic-pigeonholed into PAYE when they might legitimately continue to operate through a PSC.

Employers’ concerns are not unwarranted, HMRC has already fined the NHS £4.3m. The Government department can investigate the compliance of any business operating within the UK to ensure off-payroll contractors are legitimate. This is to cut down on those working through a limited company, but are treated as an employee, allowing them to save on National Insurance contributions.

A disguised employee is defined by criteria that asks the questions:

•  Substitution – can someone else be sent to do the work in their place?

•  Control – does the employer control the workload and how it’s carried out?

•  Risk – can the contractor make a profit or loss?

•  Mutuality of Obligation – is the contractor obliged to accept work?

While this does make hiring contractors riskier, the construction sector can’t afford to lose top talent and alienate a section of the talent pool. While staying compliant is essential to avoid fines, having a firm understanding of the changes will allow employers to avoid taking a conservative approach to contract recruitment.

Search Consultancy is a multi-discipline recruitment agency. We provide expert consultancy to businesses and workers to help them understand how IR35 reforms will affect them. To find out more about IR35 and for curated advice from tax professionals, take a look at our Ask the Expert Hub.