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What will the world look like in 2021?
Many changes are on the horizon for the new year. As of the end of 2020, we look at potential vaccines for COVID-19 to open up free movement across the country, whilst Brexit and IR35 set new rules and restrictions in the UK.
What changes will Brexit bring?
We will frequently update you as the government moves forwards with decisions on deals and final outcomes.
You can find our current brexit information page here.
And for more specific answers for what Brexit means to recruitment, EU sponsorship and settlement schemes click here.
Brexit employment pressure.
The latest employment data trends have shown that construction employment has seen a steady decline during 2019 only to suddenly drop to its lowest level since 2013 in April to June averages of 2020. The dramatic drop is most likely due to the pandemic of COVID-19 as we now see a rise back to the same pre-covid levels at the end of 2020.
At the same time, vacancies in the sector increased by 8.2% to 27,000, highlighting that there is a disconnect between available candidates and vacancies within the construction industry. This vacuum is reflective of a wider skills shortage the industry is facing, largely owing to Brexit and an ageing workforce.
The pandemic has exacerbated this disconnect with many foreign-born workers returning to their countries of origin - latest figures show that in the first quarter of 2020 EU nationals in construction fell from 87,000 to 51,000. In the last two and a half years the number of EU-born workers in London has fallen by 54%. This decrease in labour puts huge pressure on project delivery. Though the UK’s Brexit transition period has now finished, EU nationals can still apply for settled status for the next six months.
Companies also need to be aware that labour from countries outside of the EU has increased and that construction companies may start to have a more diverse workforce. Latest statistics show that the number of non-EU born construction workers has increased by 8.5% since 2018. This presents its own set of opportunities and challenges. The UK is gaining access to experts and skilled professionals from across the globe, helping to deliver essential construction projects. At the same time companies need to be aware of additional cultural differences and ensure that employees are given the necessary support to navigate life in a new country.
IR35: Gaps in knowledge
The construction sector has a heavy reliance on contract workers. The legislative changes coming into force in April 2021 will affect the tax status of individuals who provide their services as a contract worker (freelancer) through an intermediary such as a limited company.
What do the new IR35 changes mean?
From April 2021, it will be the responsibility of medium and large businesses in the private sector to understand for taxation purposes whether an individual ought to be deemed an employee on the payroll. Businesses that fail to exercise reasonable care in determining the IR35 tax status of a contractor could face significant fines.
For specific information on the latest IR35 changes click here.
If the person looks and acts like an employee, they will be deemed an employee, even if an agreement or contract states otherwise.
Are businesses prepared for IR35?
Our recent survey of construction businesses reveals that more than two thirds (70%) of medium and large UK construction firms are still not fully prepared for upcoming changes to the IR35 legislation.
Tax regime changes are likely to have fallen on the backburner given the upheaval generated by COVID-19, with survival mode kicking in for many. But these changes will have a deep impact on recruitment and HR processes and operations, with the need for in-depth stakeholder training and deployment of new management tools.
It is still possible to prepare for IR35, but businesses need to act urgently, to start impact assessments and seek high-quality advice.
- Audit procurement systems and upgrade them to recognise that an invoice has come from a personal service company and needs to be assessed.
- Communicate to HR, hiring managers and procurement teams on how to identify a contract worker vs. an employee.
- Understand the impact this might have on access to labour and project delivery
What are the implications of IR35, April 2021?
HMRC has changed the rules, shifting the onus from the contract workers to companies as it is easier to investigate companies employing several or even hundreds of contract workers, than to investigate each individual worker.
Failure to understand the impact of IR35 changes can have severe consequences. If an individual has been incorrectly categorised as falling outside of IR35, companies can receive fines and penalties from HMRC. These might include a discretionary penalty ranging from 0-100% of tax owed, and a more severe penalty is likely to be awarded if the employer has not exercised reasonable care in making their determination. We found that nearly one in four businesses (23%) were not aware of HMRC’s power in this regard.
*all data is sourced from the full report, able to download here.