IR35: the story behind the headlines

As the debate around self-employed tax changes (IR35) intensifies, we asked ECA’s Director of Employment and Skills, Andrew Eldred, to give us some background and tell us why ECA is championing direct employment.

What’s the issue?

There is a severe imbalance between direct employment and indirect employment.  Indirect employment rates in the UK construction sector are typically three times higher than in France, and six times higher than in Germany.

Please explain the difference between direct and indirect employment.

Indirect employment is relying on workers supplied through agencies, intermediaries and various forms of self-employment. Direct employment is a permanent or fixed term job.

...the UK’s over-dependence on indirect employment is neither desirable nor sustainable

Why is ECA involved? 

ECA and its Members recognise that the UK’s over-dependence on indirect employment is neither desirable nor sustainable. It undermines skills development, competence, quality, safety and wellbeing.

What has ECA been doing about direct employment?

Over the past year, ECA has used its voice within the Construction Leadership Council (CLC) to raise awareness about the issue among industry leaders and Government.

What has been the response?

We’ve had five very positive achievements:

1. CLC’s June 2020 Roadmap to Recovery expressly recognised direct employment as an ‘enabler of apprenticeships, upskilling and competence’. 
2. Andy Mitchell CBE, CLC Co-Chair endorsed the Joint Industry Board’s report  setting out the benefits of direct employment. 
3. Fergus Harradence of BEIS confirmed ‘this is going to be one of our objectives over the next few years; we will want to see more people directly employed.’
4. The CLC Skills Recovery Plan, to be published next month, includes specific industry initiatives to raise levels of direct employment. 
5. We’ve also highlighted to Government how the current tax rules offer a major incentive to false self-employment.  

What is ECA’s position on IR35?

ECA supports the tightening up of IR35 rules in the private sector. We know from experience that HMRC ‘crackdowns’ mean those who want to avoid the new rules will find other loopholes. We will therefore continue to press the CLC and Government to take a joined-up, all-encompassing approach to employment status, tax and employment rights as laid out in the Government’s own 2017 Good Work Plan.

When do the new tax rules come in?

Changes to IR35 take effect from 6^th April 2021.