Digital skills shortage: IR35 and Brexit create the perfect storm

Content Team

In many ways, the digital skills shortage is the result of a perfect storm striking the UK.

Every day, businesses in all sectors are launching large-scale digital transformation projects. Yet, they often struggle to attract and retain the skills to deliver them.

The storm that could derail these projects is composed of several elements.

To begin, the integration of big data, cloud computing, and AI presents a complex challenge. These forces are fuelled by the development of robotic processes, cognitive recognition, and blockchain technologies.

To make matters more interesting, business leaders must also plan for the effects of IR35 and Brexit, discussed in more detail below.

These forces create a perfect storm looming over UK enterprise, and all businesses which seek to maintain competitive advantage must be mindful of its potential impact.

Miles Stribbline
Miles Stribbling discusses how Brexit and IR35 affect the digital skills shortage.

After all, the ability to attract investors and key talent may be at risk. Miles Stribbling, Consultant at Hudson RPO, shares his observations and insights.

IR35: a threat to contracted digital skills

If it isn’t hard enough to compete with Google, Goldman Sachs, Apple, and Amazon, HMRC have decided to play a trump card by extending Intermediaries Legislation (IR35) legislation into the private sector.

Presenting significant changes to work rules and contractor rights, IR35 comes into effect in April of 2020. These rule changes apply to companies with 250 or more employees.

IR35 is not an entirely new concept, of course, with changes to the legislation first being introduced to the public sector in 2017. A 2018 study by CIPD and IPSE revealed that more than 50% of managers lost contractors when HMRC implemented new IR35 legislation in the public sector. More than 70% of managers said they struggled to retain skilled contractors due to tax changes.

When Her Majesty’s Government first introduced IR35 in 2000, it was designed to address the problem of contractors working through personal service companies to avoid paying employment taxes. However, the door was left open for employers to take a blanket approach and refuse negotiation about terms of engagement with individual contractors.

Unsurprisingly, this was poorly received by the contractor population.

To add insult to injury, it marked the beginning of a major shift towards outsourcing significant chunks of back office support and development work to the other side of the world.

Over time, much of this work has been ‘near-shored’. The contractor workforce has recovered and provides significant value and flexibility to companies that don’t have either the budget or headcount to employ the skills it needs permanently. That is, until now.

Currently in the private sector, companies are turning to their IR35 readiness playbooks and realising that, this time, there is little place to hide. They must take their employment responsibilities seriously.

As for the contractors, they have long memories and are not going to make it easy for their beloved clients (ie employers) to get off the hook so lightly this time.

Suddenly, the offer of full-time employment, employment rights, employee benefits, employee bonuses, and job security seems a fair trade-off for self-assessment, timesheets, and uncertainty. But it won’t come cheap! The average cost increase to convert a day-rate contractor to a permanent employee is the cost of employers’ National Insurance, at 13.8% (see note 1), plus the additional costs of payroll and benefits. And that’s before you’ve even got to the negotiating table.

Highly sought digital skills come at a premium, and those who have them are in the driving seat.

The role of Brexit in the digital skills shortage

Brexit represents the crashing waves and gale force winds of this perfect storm.

Of course, nobody knows what to expect occur over the coming weeks and months.

However, many employers are concerned that the UK is becoming less attractive to candidates who offer high-demand digital skills. These are the candidates needed to deliver digital transformation projects.

Many of these highly skilled employees hail from European countries. To an extent, it’s still unclear how Brexit will affect these workers and their appetite to continue working in the UK. Many employers are concerned about whether key digital skills will be widely available post-Brexit.

In times of uncertainty, stay upbeat about innovation

While the immediate future may look bleak, there are many things to remain positive about. The Brexit situation will eventually resolve. Businesses can then make decisions based on the UK Government’s direction.

There is a huge amount of support available to organisations that are struggling to find their way during these tumultuous times. The UK remains at the bleeding edge of financial services, fintech, technology, innovation, and data management.

Dylan Thomas, deputy director of technology, entrepreneurship, and advanced manufacturing at the Department for International Trade, recently observed: “In human history, when it comes to technology, innovation almost always occurs at periods of crisis, uncertainty, and adversity.”

By providing in-demand skills and knowledge, contractors are key contributors to corporate innovation. Yet, many companies may struggle to retain contractor services, following Brexit and the imminent changes in tax law. The right managed services provision (MSP) enables a robust talent pipeline, even when uncertainty abounds.

Creating a strategy for the digital skills shortage

So, where do you go to find the required talent at an affordable price?

Perhaps we can help. Hudson RPO are global leaders in recruitment process outsourcing (RPO) and managed services.

Since 1999, customers have trusted us for innovative, customised recruitment outsourcing, and talent solutions. We offer an exceptional ability to source and hire candidates with hard-to-find skills on behalf of our clients.

Our approach is highly consultative, professional, and above all, honest. We may not have all the solutions to the challenging times ahead, but we would welcome the opportunity to talk to you, to see how we can help.



1. HMRC: National Insurance rates and categories. Accessed 24 September 2019.

Hudson RPO

Content Team

The Hudson RPO Content Team is made up of experts within the Talent Acquisition industry across the Americas, EMEA and APAC regions. They provide educational and critical business insights in the form of research reports, articles, news, videos, podcasts, and more. The team ensures high-quality content that helps all readers make talent decisions with confidence.

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