Fintech has transformed today’s workforce for the better, most notably in the contractor space. As a result, there has been a surge in the number of people quitting their permanent roles to go freelance and companies hiring them to meet their growth needs. That is evidenced by the fact that the European Union labour market’s freelance worker segment has increased by 45% since 2000.
Among the industries that have seen the biggest uplift in contractor registrations with umbrella companies in recent times have been restaurants and events, construction and IT. But, that’s just the tip of the iceberg, with plenty of other sectors where contracting can be successfully deployed.
Thanks to advances in technology, contractors can now do everything digitally, from invoicing and receiving payment from clients to making sure that they remain compliant with IR35 and filing their tax returns. Put simply, the number of potential applications for fintech is almost limitless.
With tax rules constantly evolving, fintech’s main use is that it enables contractors to stay up to date and compliant with the latest changes in legislation, wherever they are. The main one is IR35, a tax anti-avoidance legislation introduced by the UK Government in April 2000 to prevent contractors from reducing taxes through a limited company while maintaining a permanent position with an end-hirer.
Since coming into force, IR35 has already undergone big changes, the most significant of which came as recently as April 2021, when HMRC transferred responsibility for determining the contractor’s IR35 status to the client. This meant private sector companies employing contractors had to check their IR35 status and pay PAYE and National Insurance Contributions if they fell inside the legislation, otherwise they may face financial penalties.
The technology also allows contractors to keep on top of their bookkeeping and accounts. This has been accelerated by initiatives such as the HMRC’s introduction of Making Tax Digital, requiring them to submit their tax and VAT returns online using compatible software.
Another of fintech’s key uses is that it enables contractors to more widely request and accept payments in different currencies. That’s particularly beneficial when they operate globally across multiple borders.
At the same time, during the current downturn, employers have been making full-time redundancies and taking on increasingly more contractors to perform those duties. Technology has enabled them to make the onboarding process and management of these contractors easier and more efficient.
Rather than dedicating more time and resources, and employing a team to carry out manual document checks on new employees, companies can now use technology to do the work for them in a matter of minutes or even seconds. It is also done in a compliant manner and leaves an easily auditable trail.
As fintech has become more widely available, so this has also enabled companies to look even further afield for the best talent. Now they can use a contractor working on the other side of the world, who they can pay using an international cross-border transaction, if they so wish.
In order to ensure that companies and their contractors remain fully compliant, however, the technology has to be built properly from the outset. That means not only building current legislation compliance into the product, but also allowing for any necessary infrastructure changes or updates to be easily made in a timely manner at a later date.
At the same time, the technology needs to support scaling up the business. But that’s not without its challenges either; for example providing services in a different country.
First the company has to register and then navigate multiple tax and legislation and cultural changes, before learning the business processes. In the past, these problems would be dealt with by hiring locals, but now technology has made the process far more reliable and efficient.
Fintech has proven that it can benefit both contractor and employer alike. As increasingly more people move into contracting, so the need for more effective and quicker technology is only going to accelerate moving forward - something we’re proud to be at the forefront of at Cool Company.