IR35 is it really that scary?
As it’s Halloween, it’s almost appropriate to look at something that’s spooking out the contract market across the UK. IR35 rules, were rolled out to the Public Sector in 2017 and are being rolled out to the Private Sector in April 2020.
Post April 2020, the Private Sector ‘hiring manager / employer’, instead of the contractor, becomes responsible for proving that they are self-employed and not simply disguised as an employee.
IR35 isn’t the best defined piece of legislation – a common theme these days given that many of us are still trying to get to grips with how to manage GDPR (one day we’ll get the hang of it!). IR35 has been creating havoc in the Public Sector for two years now – but is the outlook all doom and gloom or are there bright positives ahead.
Here’s our Halloween journey through IR35, is it really going to cause a Bump in the Night, with Skeleton’s falling out of the closet or is this a journey down the Yellow Brick Road?
What about the facts?
- IR35 will only apply to businesses with turnover larger than £10.2 million, more than 50 employees and balance sheet assets over £5.1m
- Contractors can take the Check Employment Status for Tax Test (CEST IR 35 test )to see if HMRC suggest them in or outside IR35. In tests of 750,000 contractors 54% passed*. There are penalties for companies who incorrectly declare their contractors as outside IR35, but if they pass the CEST test then the company is not liable. Soon, companies will have no choice but to have their contractors complete the test.
- Company control over contractors will diminish with project managers no longer permitted to give specifications, tell contractors what to do or monitor progress weekly
- Companies must review their current business practices as soon as possible, including onboarding and take steps to work differently ensuring that all hiring managers understand the dangers of non-compliance.
So, what’s going to happen for businesses hiring tech workers?
- We’re going to start seeing contractors converting their work into permanent roles – why? There will be an air of uncertainty, these choices will happen as a knee jerk reaction.
- The contractor pool, specifically higher skilled staff will soon decrease – limited companies are dropping, therefore projects requiring staff with certain skill sets will struggle.
- Contractor pay is going to need to see an increase due to the change in take-home pay after tax. (nearing the increase of 25%)
- The new IR35 rules will create more Permanent Jobs on the market with more choice for, more competition and increased pressure to retain Permanent staff
- Contractors may choose work abroad, and the UK may lose highly skilled tech workers.
- Service companies spring up ‘contractor collectives’, and Umbrella companies pick up where some of the Limited companies cease to exist
Sure, of course there are positives.
- We’re going to need to work differently. Scoping out and declaring agreed milestones and deliverables performed in each contract and at what cost and timescale for work delivered. This could see an increase in ROI.
- Clearly defined contract work may lead to better outcomes for both contractors and companies.
- Contractors will see the positive effect that their time will be better available for more projects and more work fitting to their skill set.
If companies get it right, IR35 won’t be a fright, instead a fairytale for contractor work.
At the Source Group, our experts are always on hand to provide knowledge and insight into your contractor business and workforce. Contact us today.
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By: Rebecca Lauder-Fletcher