The UK is due to leave the EU on 29 March 2019 at 11 p.m. GMT time, but recent parliamentary debate shows that what happens next is anyone’s guess. While in theory Brexit appears to offer the UK a chance to self-govern in the name of the nation’s best interests, the deep and far-reaching implications of such a departure imply that, in reality, national interest can rarely be considered in isolation from the interests of those with whom that nation coexists and relies upon. The effects of Brexit on UK business is, of course, one of the key areas of debate, but the impact of changing employment laws, immigration rules and Britain’s single market status will have a specific impact for contractors who are always at the sharp end of market fluctuations. Here at Contracting Wise, we consider the long and short-term implications for UK contractors and the contracting sector.
The short-term implications of Brexit for contractors
The good news is that in the short term, the pervading uncertainty around Brexit is likely to work in the contractor’s favour. Crucial to the success of this sector is the agility and flexibility it provides to businesses, allowing them to rapidly up-skill their workforce or scale it down according to demand. This has proven hugely effective in boosting the UK’s economic growth since the last recession; giving businesses short terms access to specialist skills without permanently draining their budgets.
Currently, employers don’t really know what Brexit means; consequently, the flexible, scalable and cost-effective nature of contractors should make it easier for them to adapt to the changeable landscape. As businesses wait to see what the implications of Brexit will be, the reigning uncertainty could mean that there is reluctance to make long term-decisions that involve hiring permanent staff. However, in the meantime, businesses can’t afford to grind to a halt, with new projects and major system changes creating an immediate demand for the flexible services that contractors provide.
Even in the short to medium term, new tariffs and changing regulations will increase demand for skilled contractors, which will lead to demand and possibly an upturn in billing rates. In addition to the changes in our relationship with the EU, changes to employment law following Mathew Taylor’sreport on modern working practices in the UK will also impact on the contacting sector, with pending reviews on the rights of agency workers and how they are taxed. The subsequent changes that businesses will need to make to their infrastructures will create a considerable demand for contractors with expertise in professional services sectors such as legal, IT and finance.
The long-term implications of Brexit for contractors
If the short-term uncertainty looks set to benefit contractors, then the long-term impact of leaving the EU could be where we begin to see a catch-up effect. The impact of sustained uncertainty could see businesses putting their long-term plans on hold. This could mean that large-scale projects and investment, which would have provided contractors with longer, more sustainable contracts, could be delayed or abandoned altogether.
Another consideration if Britain leaves the EU, is that some businesses may be inclined to invest elsewhere. This will particularly apply to large multinationals who might relocate or reduce their UK operations in order to avoid EU tariffs and operational costs resulting from increased administrative hurdles if the free movement of goods, capital, services and labour that exists between EU countries comes to an end. Although some business leaders have argued that the UK would have more freedom and agility to trade outside the EU, companies such as HSBC have already claimed that they will move around 1,000 jobs from London to Paris if Brexit goes ahead, while Airbus have said they will leave the UK in the event of a no deal Brexit. The departure of these massive businesses could lead to a loss of contractor jobs.
If the UK leaves the single market, some 45,000 UK contractors working in the EU will feel the largest impact. Although the single market for goods is well established in the EU, the single market for services, which dominates Britain’s economy, is still evolving, and there are complex rules relating to how services are taxed, with many UK contractors only eligible to work in Europe because each EU country has a double tax agreement that makes this possible. UK contractors who work in the EU might also be liable to pay VAT to the country they work in, with EU thresholds lower than in the UK. Although the UK and the European Union have agreed that workers from EU countries will still enjoy the same rights until 2020, after this, British Nationals will almost certainly need to obtain a visa before they can work in any EU country. Obtaining a work visa is nearly always a time-consuming process, and often an expensive one.
Traditionally, Many UK contractors have sourced contract work from countries like Germany, Holland, Belgium and France, as contract rates tend to be higher there. The restrictions on UK contractors working in the EU would mean that contracts in these countries will be more difficult to source, as it will be easier for clients on the continent to hire from other EU members. In the long term, this could result in an excess supply of contractors in the UK, increasing competition and lowering rates. However, the flip side is that it could also be more difficult for EU contractors to work in the UK, which could create a skills gap and drive up rates of UK contractors in some industries.
In a worst-case scenario, if the UK leaves the EU without a deal, the potential for a recession has also been talked about as a reality. Economic growth forecasts have been adjusted downwards, and any recession is likely to have a considerable impact on contractor recruitment. In the event that businesses have to downscale their workforce in order to sustain an economic downturn, their contingent workforce will be often be the first to be let go. Contractors don’t have the same benefits as employees and, as has been recently demonstrated by the debate surrounding off payroll working, mutuality of obligation does not apply to independent contractors, meaning that their contract can be terminated at short notice and without consequence.
Until a final deal is struck (if one is struck), nobody knows what agreements will be signed and how these will affect trade and tariffs. There are many possible outcomes, and the repercussions of these are unlikely to be immediately apparent as the UK defines itself in a post-Brexit world. What’s probable is that there will be both difficulties and opportunities for contractors in the coming years. However, this year showed an increase in rates for independent workers and it seems likely that there will always be a market for skilled contractors who keep ahead of their sector’s requirements.
At Contracting Wise, we offer assistance with every aspect of contracting – to speak to a member of our team, call 0203 642 8679