Recent statistics from Companies House regarding the number of company incorporations and dissolutions have caught the eye of many experts involved with contracting.
The statistics provide an interesting insight into how the world of work has changed over time. Although no statistics are available to show how many of these companies were personal services companies, it seems that such companies have had a major effect on what the information indicates.
Back in the early 1990s, only around 100,000 company incorporations took place each year. Fast forward to today, and that number is nearer 600,000 per year. This is likely down in part to more and more workers setting up on their own – many in a contractor and personal service company capacity.
In a blog post entitled IR35, The Legislation That Keeps On Giving, Carolyn Walsh – a tax, status and payroll expert and director of CWC Solutions Group – has reflected on what the statistics show.
“The graph does appear to back up the HMRC argument for the need for a tightening up of Intermediaries’ Legislation (IR35), or does it?” Walsh writes. “’Incorporations have been on the rise over the last 25 years, paradoxically increasing sharply after the introduction of IR35.’ I would guess that this sharp increase was partly, or even mainly, due to the setting up of a few hundred thousand composite companies; a response from those well known companies which set out to avoid IR35 following its introduction at the turn of the century.”
Walsh says that this point is furthered by the sharp drop in incorporations in 2007, and a massive increase in dissolutions. This was following the enforcement of the MSC legislation, which closed most composite company schemes.
Since 2007, the number of company incorporations and dissolutions have steadily risen, with Walsh surmising that this likely reflects ‘incidence of agency workers being required to set up a limited company in order to obtain contracts, who seeing no further need for the company when the contract ends, tend to walk away leaving the company to be dissolved’.
How such statistics will be altered following the upcoming IR35 government reforms are yet to be seen. Although these changes centre on the public sector, Walsh predicts a decline in company incorporations and a rise in dissolutions across all industries.
“The battle between HMRC and the companies which exist only to use tax laws to their own self-serving advantage, has masked the numbers of new businesses which are genuinely trading and which are seen as the lifeblood of the UK economy, and therefore an indicator of how well or badly the country is doing,” she say.