We need to talk about IR35
01 December 2019
This article was featured in the December 2019 - January 2020 issue of the magazine.
Anne O’Donnell, chief executive officer of Procorre, reveals the disturbing findings of its research
The devil is in the detail as they say, but before we get into that, let’s have a small recap.
Intermediaries legislation (also simply referred to as ‘IR35’) was first introduced in 2000, to regulate individuals providing services via a limited company. New ‘off-payroll’ rules were then implemented in April 2017 for public sector organisations, which switched the responsibility of determining a contractor’s IR35 status from the contractor themselves to the engager, i.e. the client organisation. These same off-payroll rules will now be extended to private sector businesses from April 2020, impacting an estimated 900,000 UK-based limited company contractors.
Both clients and contractors need to be ready for the changes to avoid losing access to valuable skills and client projects respectively.
Procorre recently launched Next10, a new initiative that champions contractors and provides a supportive voice for the industry. As part of Next10, and with the April 2020 off-payroll deadline ever closer, we surveyed over 500 contractors and 500 UK human resources (HR) professionals to examine how ‘ready’ they are for the IR35 changes and where any misunderstandings or potential hurdles lie (www.Procorre.com/Next10). So, let’s have a look at some of the findings.
Since the changes to IR35 regulations in the private sector were unveiled, nearly half (47%) of HR managers said they’ve been ‘drowning in paperwork’. Half of these (50%) said they’ve found it difficult to concentrate on other tasks, and that planning for the changes has ‘taken over their time’ (47%).
If you’re wondering what’s causing this headache, the research reveals a number of insights that suggest many contractors are not as compliant as they think they are. For example, even small things like using a client’s email address domain, which nearly three quarters (72%) of contractors do, could fall foul of the new legislation, thus adding to the administrative burden of the clients’ HR departments who must now ensure compliance.
Invoicing multiple clients throughout the tax year is more likely to help a contractor retain their career contractor status. However, when it came to surveying the scope and nature of contractors’ activities, we found 57% work on a sole client contract at any one time, while one in ten said they hold management duties over employed staff.
If a contractor is also based within the office of one of its clients, they are more likely to be considered an employee under the eyes of the new legislation. Alarmingly, nearly a quarter (24%) of those surveyed work solely on site for their client.
...HR managers said they’ve been ‘drowning in paperwork’...
Adding to this, 65% of contractors said they don’t need approval for time off, but over half (53%) confirmed their client picks the days, hours and locations they work, despite their contractor status. In addition, over half (52%) of the contractors surveyed said they use equipment provided by their client. Although they cited cyber-security concerns as the reason, this is still potentially problematic.
Despite HM Revenue & Customs confirming it will not implement the rules retrospectively, taking the above into account it’s not surprising that the majority (84%) of HR professionals are worried about the drain on resources administration will have, as they look to get a handle on the new legislation before April.
Given that the changes to legislation could mean some contractors within the private sector find themselves liable for a higher tax bill, there are questions as to how this could be reflected in contractor rates or even whether there will be availability of the necessary skills to fulfil future projects. Over half of HR professionals (52%) think that contractors will definitely increase their rates after the changes and two thirds (67%) said it will be harder to recruit the necessary skills for their organisation.
In fact, 69% agreed that highly skilled contractors will be driven abroad to the advantage of their competitors overseas.
With the level of concern felt within the HR profession, most are seeking advice from third party organisations and 27% of those surveyed are spending between £200,000 and £499,999 to prepare for the changes. In fact, over a third (36%) of medium-sized businesses with 100–249 employees are spending this much on getting ready, increasing to almost half (48%) of those with 250–499 employees investing this amount.
While 59% of businesses had sought guidance from the variety of sources outlined above, it’s concerning that around a third (32%) are yet to act and are ‘intending on getting advice’ – possibly exposing themselves to risk with the deadlines fast approaching.
Procorre’s position on the findings of the research is that there is no ‘silver bullet’. For client businesses and contractors alike, it’s a case of taking a pragmatic, sensible approach. In fact, those that embrace the changes can use it as an opportunity to review and improve their processes making it as easy as possible for both parties to work together within the guidelines.