The story of Challenge Recruitment Group – “Challenged” or “Challenging” might have been more appropriate – belies a marked shift in the UK employment model and a route to giving businesses much needed flexibility in tough times.
HMRC is chasing around £90m in unpaid taxes after Challenge emerged from an insolvency process in an £18m deal that repaid some backers in full. The temporary recruiter, which boasted major supermarket groups among its customers, was acquired in a pre-pack administration for £4.9m in July by the US website swipejobs. The buyer picked up key contracts with large UK brands. It paid an additional £12.7m to Challenge’s secured lenders, according to the administrator’s report.
In principle, the present environment should be helpful to swipejobs as it restores Challenge’s core business to stability. Rising market levels of pay are becoming a severe headache for businesses, not least SMEs, with Budget changes piling on the woe. Fellow recruiter Adzuna says the average advertised salary exceeded £40,000 for the first time in 2024, up more than 7% on the previous year. The rate of employer National Insurance Contributions (NICs) increased by 1.2 percentage points to 15% in April, while the earnings threshold at which employers start paying fell from £9,100 to £5,000.
Non-permanent or interim staff at all levels may present a solution to a huge cost concern. In the post-Covid economy, many employers are turning to the interim market for all aspects of labour, from large special projects such as transformation and restructuring, to isolated skills gaps. Independent contractors may invoice from their own companies and, if they have other ‘clients’, will avoid being seen as de facto employees. Agency workers are another possibility.
Of course, there is a wider picture to consider. More than a fifth of working-age adults in the UK are deemed not to be actively looking for work, government figures suggest. The UK’s economic inactivity rate for people aged 16 to 64 was 21.0% in the second quarter to June 2025. This is down from previous estimates, but the number of people economically inactive – not in work, nor looking for a job – was still 9.09 million. The figure is higher than before the pandemic, raising concerns over worker shortages affecting the UK economy.
Economically inactive people are usually outside the workforce either because they are students, have retired or are suffering from long-term illness. Work patterns and career priorities have been changed by Covid’s disruption to ‘normal’ working life. Retaining and recruiting permanent skilled staff is increasingly challenging and, regardless of motivations cited by employees, financial incentives remain the strongest tools for attracting talent and slowing staff turnover.
The main alternative is attempting to recruit from a wider pool. This applies not only to executive and skilled positions, but to the less skilled end of the workforce, where relatively cheap permanent labour is no longer readily available. Both these tightening factors in the labour market have added to a wage spiral and have been compounded by the effects of Brexit on labour supply at all levels. The potential for valuable working capital to be impacted adversely by recruitment issues is very real.
Whether hiring interim, casual, freelance, agency staff or consultants, SMEs must be aware of all relevant tax and legal issues for flexible employment, particularly with respect to staff transferred to flexible hours contracts. While the prospect of short term cost savings may appear very appealing, particularly while interim rates remain competitive, the potential for incorrect compliance and lack of business continuity may lead managers to review staffing needs more carefully. Businesses should take appropriate professional advice on navigating this maze and its effects on cashflow to help optimise the benefits of flexible labour.
This article is written by Toby Horne, analyst at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.