IR35: The removal of the double taxation bill offers the potential for the UK market to open up again, but is the current state of the UK contracting market an untouched goldmine for employers in the US?

On the 22nd February, the Finance Act 2024 announced the removal of the double-taxation issue surrounding IR35 contracts in the UK. This recent change in the law significantly mitigates the previous risk faced by employers, reducing tax threats for firms by up to 75%, and enables businesses to operate with reduced exposure to unjust financial penalties.

This change offers the potential for the UK market to really open up again for outside IR35 contractors, many of whom remain in the market, but who are currently stuck in permanent roles, or working via Fixed Term or ‘inside’ IR35 contracts, all with the eagerness to move into an ‘outside’ IR35 contract. Over the last year, 53% of freelancers have walked away from ‘inside’ IR35 contracts in the UK, and 62% said they aim to avoid these all together (cbw, 2023).

Many firms have opted (often reluctantly) to increase their use of consultancies in recent years, despite the often eye-watering rates being charged for even relatively inexperienced resources. The tide is also now turning on that model as many organisations are reconsidering this approach in terms of return for their investment.

However, despite these changes the current state of the UK contracting market is encouraging many skilled freelancers to consider work opportunities abroad, with 24% looking at roles based overseas. 1 in 5 contractors are currently out of work, with half of these due to the impact of this risky and controversial tax reform (Freelance Informer, 2024). Many of these freelancers are either rejecting ‘inside’ IR35 contracts, or simply considering early retirement as it poses a much more minimal risk than operating within these contracts. This is a major cause of concern for the UK government, yet an untouched goldmine of offshore talent to those in the US. Has the UK become the low-cost offshore location to the US, in the same way that India is to the UK?

One UK resident even found that moving abroad made them the preferred candidate for UK based companies. By emigrating and becoming a tax resident outside of the UK, then taking a remote contract, automatically removes any involvement with IR35 for both yourself and your employer (Freelance Informer, 2022). This completely mitigates this risk, making the Non-UK based candidate the preferred option.

Another contributory factor to the appealing choice to work for an overseas company is the significant gap in salary ranges between the UK and the US. For example, one cybersecurity company explains that their software engineers earn 2-3 times more at their US firm than at an equivalent UK firm, yet their jobs are fully remote, mostly based in the UK, and with 90% of the revenue being generated from the US.

Despite a reduction in Outside IR35 roles over the past several years, City Integration has been fortunate to maintain an extensive network of individuals with proven track records, business knowledge and technical specialisms across the full spectrum of industry roles, all at a much more palatable rate in comparison to some larger consultancies.

With the potential that this major reduction in risk has to offer employers and hiring managers, now is the perfect time to open up opportunities to these outside contractors, and at City Integration we are here to help you achieve this.

Will these figures scare the government into altering this IR35 reform? Or will this prove to be detrimental to the downfall of the freelance market in the UK as we become a low-cost offshore location to those in the US.