With just six weeks remaining until the HMRC begins enforcing IR35 in the private business and charity sectors, there is considerable and understandable uncertainty about the future of UK contracting. What will the industry look like after 6 April, and how can businesses and contractors manage the transition to stay compliant and competitive? Just Interims at Oliver Sanderson takes a closer look…
As is widely known, IR35 introduces major changes to the off-payroll working rules which govern the employment of contractors, shifting the responsibility for determining IR35 status from the contractor to the fee-paying party.
Currently it is up to contractors to decide for themselves if their work falls within the scope of the IR35 reforms, but from 6 April 2021 their employers will be required to assess the tax status of each of their contractors on a case-by-case basis to determine whether they should be classified as employees for tax purposes. If a contractor’s engagement is found to be inside IR35, the contractor will have to pay the same employment taxes and national insurance contributions as a permanent employee would. This change creates new challenges for the firms and agencies engaging and placing contractors, and has provoked concern in some quarters about the future of the UK’s contracting industry.
We have now been debating IR35 for over two decades, with the legislation first introduced in 2000. Its application in the public sector since 2017 has proved controversial, with national corporations like the BBC and the NHS challenged with blanket employment status determinations. In 2019 the HMRC won a landmark IR35 case against three BBC presenters using PSCs, leading to extensive and costly investigations about whether the corporation did enough to warn its contractors about the risks. With many viewing the public sector rollout of IR35 as a trial run for the private sector, there has been considerable anxiety about the impact of the upcoming changes on the business world.
Some businesses are taking a risk-averse approach to IR35, insisting that contractors work through umbrella companies or offering roles exclusively on an “inside IR35” basis. Deloitte recently confirmed that contractors will only be able to engage with it via a third-party after 6 April, banning all engagements with limited companies and PSCs. BP, the Bank of Ireland, Three UK, Zurich Insurance, and Metro Bank have all outlined similar plans.
Nevertheless, Deloitte’s IR35 policy has underlined the continued importance of contractors. In a recent statement to Computer Weekly, a spokesperson for the company stressed that contractors would remain a crucial part of its workforce, but that they will henceforth by engaged via employment agencies or umbrella firms.
“Deloitte’s freelancers, independent contractors and consultants bring a huge range of skills to our firm,” the statement reads. “This dynamic and flexible talent pool is very important to us and that won’t change.
“However, we need to ensure that we are compliant with the government’s new off-payroll working rules – the complexities of engaging with contractors through PSCs mean this is no longer a viable option for Deloitte.
“Going forward, we will engage them through employment companies – also known as ‘umbrella’ companies – or agencies. We continue to stay in close contact with existing contractors and with employment companies on these changes.”
As Deloitte’s example makes clear, Umbrella agencies will play a vital role in managing the transition to IR35 post-April, helping to safeguard the future of the contracting industry. Just Interims at Oliver Sanderson works with accredited Umbrella providers, all FCSA / Professional Passport accredited, to provide an avenue to competitiveness and compliance for our clients and contractors.
Despite the speculation and scaremongering, the business world is clearly reluctant to sacrifice the flexibility, skills, and savings brought by the UK’s independent workforce.
Isobel Hannan, Associate Director of Just Interims at Oliver Sanderson, noted: “It is important to stress that the IR35 changes are manageable. Contractors need to remain resilient and safeguard their IR35 status, while their employers need to be assured that they can deal with these changes and remain compliant and competitive. The contracting industry is going nowhere, and our clients will continue to enjoy the benefits – the agility, high-level expertise, and leadership – that contractors can bring to their organisations.”
Just Interims helps its clients implement comprehensive compliance strategies, facilitating IR35 ‘Health Checks’, Collaborative Assessments, Status Determination Statements, robust contractor engagement policies, and insurance-backed solutions. The signs are strong that the contracting industry will remain resilient and could even flourish post-April, as the business world responds to the unprecedented challenges of COVID, Brexit, and recession. Contractors are poised to play a central role in the recovery.
Meanwhile, the government has attempted to calm anxieties about the introduction of IR35. Last week the government confirmed that it would waive IR35 penalties for one year following 6 April 2021, and stressed that it would support businesses trying to comply with the law. Targeting ‘deliberate defaulters’ and contractors engaging in artificial or contrived arrangements, the April reforms are not intended to impact genuine suppliers of services, and will only be applicable to medium and large-sized businesses. Contractors working for ‘small’ companies will be unaffected by the changes.
Though there might be some initial upheaval, it is clear that the contracting industry will continue to play a crucial role post-April, as the UK economy pursues its ambitious recovery plan. At the executive level there will always be a need for interim specialists, helping businesses navigate times of change and solve complex challenges. IR35 undoubtedly represents a critical juncture for the contracting industry, but there are several avenues to a brighter future.