UK Tech Talent Exodus: Why IR35 Reforms are driving UK Freelancers to the US

Introduction

Being a tech freelancer or contractor in the UK has never been more difficult than it is in 2024. Yes there are hiring freezes and layoffs but that is not the main issue. There is still a slower than usual demand for tech freelancers and contractors due to blanket bans in large companies due to the IR35 Reform.

What is IR35?

Lets take a look at IR35 first. IR35, also known as the off-payroll working rules, was introduced in the UK to combat tax avoidance by contractors and freelancers who work similarly to employees but through an intermediary, such as a limited company. These rules ensure that contractors pay roughly the same tax and National Insurance contributions as employees. 

Contractor Calculator uses the following description:

IR35 is a word used to describe two sets of tax legislation that are designed to combat tax avoidance by workers, and the firms hiring them, who are supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.

In its simplest form, IR35 makes a lot of sense and worked relatively well for many years but everything changes in April 2021.

IR35 Reform 

In April 2021, the liability for determining IR35 status fell onto the end-client and fee payer for the first time, this was called IR35 reform. Below is short description on GOV.UK website:

From 6 April 2021 all public authorities and medium and large-sized clients outside the public sector are responsible for deciding if the rules apply. If a worker provides services to a small client outside the public sector, the worker’s intermediary is responsible for deciding the worker’s employment status and if the rules apply.

This led to large companies deciding to bring in blanket bans that stop use of outside IR35 contractors. This has eased over the last two years but has reduced the amount of contract demand in the UK significantly. 

Current State

A survey conducted by IPSE (the Association of Independent Professionals and the Self-Employed) highlights the impact the reform is having for UK freelancers and contractors. IR35 Reform has left a significant number of tech talent with a lack of UK-based projects. 

Andy Chamberlain, Policy Director at IPSE, shares the current situation: 

Approximately 21% of surveyed freelancers and contractors are currently without work, with half attributing this directly to IR35. Also, the reluctance to accept “inside IR35” contracts is clear, with 55% of contractors refusing to accept to work this way. 

Where Next

IPSE also reported in the same survey that IR35 reform has driven 24% of contractors to consider looking beyond the UK for project opportunities, with the US emerging as a prime destination.

US companies are increasingly turning to UK tech freelancers, viewing them as a nearshore pool of highly skilled tech talent. Here are six reasons why:

• Access to Exceptional Talent

UK freelancers are renowned for their high level of skill, particularly in the tech industry. With a robust education system and a dynamic tech startup scene, the UK has nurtured a workforce adept in the latest technologies and methodologies. US companies seeking cutting-edge expertise find that UK freelancers offer a depth of knowledge and experience that is both rare and invaluable.

• Cultural and Linguistic Alignment

One of the most significant advantages of partnering with UK tech freelancers is the seamless integration into US projects. The cultural similarities and shared language reduce the friction often encountered when working with offshore teams. Communication is clearer, misunderstandings are minimised, and collaboration is more straightforward, leading to more efficient project completion.

• Time Zone Convenience

Unlike traditional offshore destinations, the UK’s time zone offers a nearshore advantage for US companies. The minimal time difference allows for real-time collaboration and more flexible communication between teams. This nearshore model enables US companies to work closely with UK freelancers during overlapping business hours, facilitating agile development processes and faster decision-making.

• Cost-Effective Solutions without Compromising Quality

While the cost savings may not be as significant as those achieved by offshoring to countries with lower living standards, hiring UK freelancers still offers a cost-effective solution for US companies. They can access a pool of top-tier talent without the overhead costs associated with full-time employment. Importantly, this cost efficiency does not come at the expense of quality, ensuring that projects are completed to a high standard.

• Navigating Regulatory Compliance with Ease

The UK’s legal and business practices are closely aligned with those of the US, making it easier for US companies to navigate contractual and regulatory compliance. This alignment reduces the legal and bureaucratic hurdles often associated with international hiring, providing a smoother, more secure framework for engaging with freelancers.

• Enhanced Flexibility and Scalability

The dynamic nature of the tech industry requires companies to be flexible and scalable. UK freelancers offer US businesses the agility to scale their workforce up or down based on project demands. This flexibility ensures that companies can respond quickly to market changes, innovation cycles, and project requirements without the long-term commitments of traditional employment.

Conclusion

In conclusion, tech freelancers and contractors in the UK are being negatively impacted by IR35 reform and the US market offers more opportunity that the UK currently. This is why Gigged.AI announced that US companies can now hire UK freelancers on the Gigged.AI platform. This means US companies can tap into UK tech talent as a nearshore resource for skills like AI Engineering, UX Design and Data Science.