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IT contractors who are being banned from engaging end-clients through their own personal service companies (PSCs) ahead of the April 2021 start date for the IR35 private sector reforms are the target audience for a newly launched Pay-As-You-Earn (PAYE) umbrella company.
Trading as Techcentre Umbrella, the company’s founder and CEO, David Barker, said the setup is aimed specifically at contractors working in a wide range of technology-related roles who may have found themselves “displaced” by the incoming IR35 reforms.
“A lot of people think IT contractors are just software developers, but you’ve got a lot of people like designers, digital marketers and project managers who’ve got their own PSCs and have been displaced by the new IR35 legislation… [that] are used to working direct with end-clients,” he said.
This is in reference to the trend Computer Weekly has repeatedly reported on in recent months whereby many medium-to-large private sector organisations in scope of the IR35 reforms are seeking to side-step the new rules by banning the use of contractors from their organisations.
This is because, from 6 April 2021, all medium-to-large private sector organisations will assume control for determining how the contractors they engage with should be taxed, based on case-by-case assessments of the work these individuals do and how it is performed.
For firms that are heavily reliant on contractors in order to function, this shift in responsibility will place a huge additional administrative burden on them that many appear to be unwilling to take on.
As such, they are telling contractors that if they want to continue working for them, they must do so via an umbrella company from April 2021.
This is because signing up to an umbrella company typically requires the contractor to cease trading as a limited company (or PSC) to become the umbrella’s employee. As such, a private sector firm is no longer required to determine how the contractor should be taxed, because they will already be on the umbrella company’s payroll.
Despite the high-levels of churn going on in the contractor market, prompted by the onset of the IR35 reforms, Barker said he predicts that demand for flexible, freelance tech talent will rise during the post-pandemic “build back” of the economy.
“Employers and businesses will probably be less inclined to hire people full-time or onto their payroll, and so there will be opportunities out there for people who can work flexibly, and – by working through an umbrella – work a few days a week at different SMEs, for example,” he said.
As well as offering contractors access to the traditional payroll and invoicing services that umbrellas provide their employees with, Barker said the Techcentre setup will also provide its members with access to networking and community support through regular get-togethers.
This is a key point of competitive difference between Techcentre Umbrella and what the rest of the “highly commoditised” umbrella industry have to offer, he claimed.
Expanding on this point, he makes reference to the fact the admin fees umbrella company contractors pay are largely the same across the industry, with many typically paying around £25 a week for these firms to manage their invoices, payroll and employment tax deductions.
“A lot of them are cutting costs right now, but they will back up again after 6 April. Our launch offer is £19 a week, which is fixed for life for those contractors that join now,” he said.
“In many of the large [umbrella companies], it is like a sausage factory. You’ve got everybody together in there from different industries and professions, and you’re just a line on a spreadsheet. If it is run correctly and HM Revenue & Customs (HMRC) compliant, there is no differentiator,” said Barker.
“By making an umbrella specific to those linked to the technology industry, you have a real family of people that can actually relate to each other and form a community.
“I’ve been a contractor myself and it can be quite lonely because you’re working with a client, but you’re not an employee and you don’t get included in networking and socials, whereas we can offer a bit of that through our umbrella company.”
In time, Barker hopes to develop a system whereby end-clients can advertise contractor-friendly job opportunities to the community, as he seeks to find additional ways to add value to the umbrella setup for its employees.
In the meantime, members will receive discounts from high street retailers, supermarkets and petrol stations, as well as free insurance including employers’ liability, public liability and professional indemnity cover as well.
They will also be provided with access to health benefits, including a 24-hour GP service, and an employee assistance programme offering legal, financial, and mental health support as well.
The umbrella company is an extension of the wider Techcentre social enterprise brand that Barker founded in 2015. This venture initially focused on incubating and accelerating the development of tech startups before broadening its range of services to include technology consultancy last year.
The brand also has a separate training arm that is geared towards providing online access to Continuing Professional Development (CPD) opportunities to tech workers.
Looking ahead, Barker said he is hoping in time to evolve the Techcentre Umbrella business further by drawing on the skills training and development work the other arms of its business are concerned with to diversify the pool of contractors on its books.
“What if we could train unemployed young people to become contractors? To become consultants or project managers and then get them work experience with clients?” he said.
“It’s a really exciting idea. We’ll still be getting the people already doing [this kind of work] into the umbrella, but could we train up a new generation of young people to become contractors, as well.”
Read more about the IR35 reforms and umbrella companies
- A surge in the number of umbrella company comparison sites offering “too good to be true” take-home pay rates has reignited concerns that the incoming IR35 private sector reforms could result in more IT contractors facing life-changing tax bills in years to come.
- Consultancy giant confirms that contractors will only be able to engage with it via a third-party umbrella or employment agency after April 2021, as part of its IR35 compliance strategy.
- Zurich Insurance is the latest high-profile financial services company to declare contractors can only continue to engage with it via umbrella setups from April 2021, ahead of the IR35 rules coming into force.