Short-term contracting can work well for employers and staff, but beware your tax obligations

In recent months there has been a noticeable increase in demand from companies wanting to hire contractor staff to meet their short-term resourcing needs. However, the hiring landscape has undergone significant changes over the last five years. Brexit means there is less immediately available talent coming to the UK, and IR35 rules that came into effect on 6 April 2021 have caused many contractors to reassess their working situation and pursue permanent roles.

The good news is that there are still lots of people who enjoy the opportunities that contract work offers—flexibility, variety of work, and the opportunity to get a foot in the door at their dream company. And for candidates moving to London from other countries, contracting is a great way to get their first job in the UK.

With offices in the UK, Australia and the US, our teams at Bespoke Careers facilitate global opportunities for candidates who are keen to move between continents. Over the past 12 months, we’ve seen the number of Australian and New Zealand candidates coming to the UK increase considerably—returning to pre-pandemic numbers and bringing in valuable design and software skills.

Often on a two-year Youth Mobility Visa and wanting to travel and remain flexible, contract work allows international candidates to experience working in various firms and getting exposure to many different projects—whilst giving them breaks between contracts to explore the UK and Europe.

Additionally, those on student visas are not able to work in a position that would fill a full-time permanent vacancy, but they can work on contract—with some limitations on the type of work—20 hours a week during term time, and full-time during holidays. They cannot be self-employed, so they need to be invoiced at a Pay As You Earn (PAYE) contract employee.

Although teams have been rebuilt over the past couple of years, many companies are running on a lean workforce

The temporary workforce is not limited to international candidates. We work with many local candidates who dip in and out of contract jobs to supplement their income, alongside their own endeavours, as well as highly skilled candidates who are returning to the workforce after a life event such as parental or carers leave and want a part time or graduated return to work.

Although teams have been rebuilt over the past couple of years, many companies are running on a lean workforce—both design and operationally. Hiring temps and contractors to help cover your short-term needs—anything from a few days front of house cover, to a maternity leave cover—means your permanent workforce doesn’t burn out covering other people’s work.

Because contractors are generally experienced at hitting the ground running and quickly adapting to new projects, they can enable your company to be agile, bolstering teams when demand requires.

And if you’re pitching for potential work or competitions, without the guarantee that you may secure the work, hiring contractors can enable you to complete the early-stage work without the long-term commitment of hiring a permanent employee.

It is important that you are aware of your tax obligations when bringing on contractors who are working through their own intermediary (usually a limited company, often known as a PSC). On 6 April 2021, the off-payroll rules (IR35) were applied in the private sector.

A final thing to note is that contractors will usually expect to be paid more often than salaried employees

The main factors you’ll need to consider are:

1. Control: Do you expect the contractor to complete the work under your direction?

2. Substitution: Is the contractor able to provide someone else to complete the work and would you be happy if they did?

3. Mutual Obligation: Does the contractor expect you to provide them with work for the entire assignment, and would you expect them to complete all the work you’ve given them?

If you answer yes to any of the above, it’s likely the contractor falls within IR35, meaning that they should be paid via the PAYE system. Otherwise, there is the risk that they are working as a “disguised employee”—resulting in HRMC fines for both the hirer and contractor’s PSC.

To avoid this risk, Bespoke Careers only provides contractors and temporary employees through PAYE. If you want to double check the tax status of any contractors you are currently working with, you can use the HMRC tool - Check Employment Status for Tax (CEST).

A final thing to note is that contractors will usually expect to be paid more often than salaried employees (usually weekly), and their hours may vary from week to week—so it’s important to have systems in place to facilitate this way of working. Hiring through an agency can help take away this hassle and ensure your company is complying with its tax obligations.