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The countdown to IR35 reform is on. Are you prepared?

There is now less than two months to go before the government’s off-payroll working (IR35) reforms come into force for medium- and large-sized private organisations on April 6th, 2020.

 

Even at this late stage, the rules are undergoing last-minute tweaks. For example, HMRC and HM Treasury announced last week that IR35 changes will only apply to payments made for services supplied on or after the deadline. Previously, the rules would have applied to any payments made after the deadline, regardless of when the services were provided.

 

It’s a relatively small adjustment, particularly at this late stage when many key IR35 decisions have already been made. But it nevertheless highlights how dynamic and unpredictable the landscape can be for organisations and contractors who are trying to prepare. Businesses rarely relish uncertainty; risk departments even less so!

 

The sentiment among most business leaders is that the reforms will harm their industry, while many contractors are experiencing anxiety or stress due to concerns over how the new rules will affect them. Meanwhile, City AM found that over half of decision-makers believe IR35 changes are confusing or contradictory.

 

Here at Barclay Simpson, we’ve been approached by many clients and candidates over the last few weeks about the reforms and how they’re affecting the market. So, I thought I’d take some time to outline what we’ve been seeing on the ground, as well as offer a few tips for those still making preparations.

Employers taking varied approaches

Responses to IR35 have been fairly diverse. Larger organisations such as HSBC, Barclays, Royal Bank of Scotland, Morgan Stanley and others revealed last year that they will no longer engage contractors who operate via personal service companies (PSCs).

 

In other words, they’re looking to simplify the process by avoiding IR35 status determinations for their current contractor workforce. Research from Brookson Legal, a leading IR35 law firm, showed 59% of businesses were considering policy changes like this because they didn’t have the time to assess contractors individually. These contractors would either have to become PAYE employees, work through umbrella companies or wait for their contracts to expire and go elsewhere.

 

That’s not to say all organisations are taking this approach. Some businesses are choosing to be more flexible and scrutinise their contractors on a case-by-case basis. This has involved offering new contracts and potentially adjusting working conditions to align with an outside IR35 scope. At the moment, however, fewer firms are choosing this route; most of the roles that clients are approaching us about have an inside IR35 focus.

 

Furthermore, we’re seeing that most businesses aren’t increasing contractor day rates for those who switch to PAYE. As such, national insurance, pension contributions and other payments will reduce overall take-home pay due to employers not offsetting the tax burden by bumping up rates.

 

Any candidates who are concerned about how the reforms may affect their current or future contracting roles shouldn’t hesitate to give us a call. We can provide detailed pay calculations, as well as offer advice and guidance regarding any IR35 queries.

 

Barclay Simpson has also published an IR35 guide for contractors, which gives a detailed explanation of the changes and explores some of the frequently asked questions that we’re fielding from candidates.

The deadline and beyond

For businesses that are still planning their IR35 measures, we have produced a guide to help with preparations. Here is a quick rundown of the steps that organisations should be undertaking:

  1. Identify workers in the supply chain that are operating via PSCs;
  2. Make employment status determinations;
  3. Analyse the results and communicate findings;
  4. Educate teams about status determinations and set up a process; and
  5. Future proof all contracts with agencies.

We have also partnered with Brookson Legal to support our clients through the process. Having conducted thousands of employment status assessments every year since the IR35 legislation was first introduced in 2000, they can offer audits, educational packages and assistance with new processes and policies.

 

However, only time will tell how the market will react in the months after the deadline has passed. Hiring managers could find themselves understaffed if key risk contractors have decided to roll off their contracts and look elsewhere. Policies may therefore evolve further, especially where businesses have big change management projects in the pipeline with strict deadlines and regulatory obligations.

 

One-third of organisations admitted to Brookson Legal that losing skilled contractors was among their top concerns regarding IR35. It’s a valid concern, as 37% of contractors said they would never consider going on-payroll, while 13% would weigh up moving abroad.

 

We’ll likely see organisations that took an initial blanket approach to IR35 returning to the contractor market in a few months’ time to fill gaps in their workforce once the dust has settled. Depending on how things develop in the meantime, they may find they have to pay a higher day rate to attract their preferred candidates.

How Barclay Simpson can help

Ultimately, our expert consultants and access to first-rate legal advice can help both employers and contractors navigate the complex maze of IR35 reforms.

 

For businesses, we can ensure they find the talent they need, while remaining fully compliant with IR35 guidelines. Candidates, meanwhile, can rest assured we will provide all the necessary information and assistance required so they can make informed decisions about their future contracts.

 

If you would like to chat about IR35 in more detail, or discuss interim risk recruitment more generally, please contact me on 020 7936 2601 or via email at cb@barclaysimpson.com.

Image credit: Gino Crescoli via Pixabay