How Contractors Can Plug the UK’s Skills Gap

skills gap the word or concept represented by wooden letter tiles

Brexit has had a big impact on UK employers, making it even harder to recruit the best talent. The problem has been magnified by the current global skills gap that is affecting most companies in the wake of the Great Resignation and Quiet Quitting phenomenons.

In the past, Britain got around this problem by hiring workers from the European Union. But since Brexit put an end to the freedom of movement of people, that employment source has dried up, with many of those who were working in the UK returning to their countries as they couldn’t get visas or they could earn just as much or more back home.

A further layer of complexity has been added to the issue by IR35 (Inland Revenue 35), off-payroll working legislation introduced by the UK government that aims to prevent tax avoidance by putting a stop to contract workers using a limited company to reduce their taxes while being kept in a full-time post by an employer. In April 2021, the legislation was updated to move the responsibility for the contractor’s tax status from the worker to the company.

That’s just if the organisation is recruiting from within the UK. If they are looking beyond Europe, there are a host of other factors that they have to bear in mind when taking on a new contractor around tax and employment.


Problems with overseas recruitment

Once the company has narrowed down the individual they want, they have to look at that individual’s particular situation. Will they move to work in Britain or will they work remotely from their own or another country?

Depending on their status, this will have all kinds of implications regarding the laws they will have to abide by, the tax they will have to pay and, if necessary, the type and level of insurance coverage they will need to perform their duties. If they are going to be resident in Britain while they work, they will have to pay UK taxes and national insurance contributions. On the other hand, if they are going to be working from another country, they will have to adhere to their specific tax codes and rules.

The central theme of IR35 is establishing whether a contractor is inside or outside the legislation. If they are inside it they will have to pay the same tax as an employee of that company. If they aren’t they will have to pay tax and national insurance contributions based on their status as a self-employed person. HMRC’s Check Employment Status for Tax tool can quickly determine this.


How umbrella companies can help

There are a myriad of different companies out there that can help, such as recruitment and payroll experts, and legal advisors that can help to navigate some of these tricky challenges that pertain to specific countries. But possibly the most effective solution is to engage an umbrella company to do all of the work.

An umbrella company can handle all of the UK-specific issues. It will ensure that the contractor has the right tax status as well as managing all of the administrative tasks around their employment.

These can range from processing their invoices and ensuring the worker gets paid on time and receives their entitled holiday and sick pay to protecting their employment rights. They can even carry out the onboarding process. That, in turn, enables HR teams to focus instead on core business activities that add value to the organisation.

The umbrella company can also make the process of working with overseas contractors easier. By managing all aspects of their employment and tax in one place under the umbrella company, the firm doesn’t need to worry about that and also has peace of mind they are remaining compliant at all times.

Asides from using an umbrella company, it’s also beneficial to engage a recruitment agency that specialises in that firm’s particular field. They can provide expert guidance and insight on where to look when recruiting, what they should be looking to pay for that individual and the pitfalls to avoid in that specific market.

Given the depth of knowledge and expertise they can offer, contractors are the perfect solution to tackling the UK’s current skills shortage. But recruiting them comes with a host of potential challenges around tax and employment. That’s why businesses need to engage a reputable and compliant umbrella company to help overcome these issues.


Kris Simpson, Country Manager UK at Cool Company, the fastest-growing umbrella company working to simplify and streamline administration for recruitment agencies and contractors. Providing freedom for contractors without the bureaucracy. While allowing businesses to benefit from access to niche talent without the need to take on new hires, or handle the admin associated with contract recruitment