IR35: Bah, humbug!

The New Year is just around the corner, but of course what makes this festive period a little different is we’ll be starting 2020 with a newly elected government. Political preferences aside, businesses across the country are hoping a healthy Conservative majority with bring some much-needed stability to the UK market, following what has felt like an endless period of uncertainty around Brexit.

Despite this, it is of course still difficult to know what we can expect from the Government over the course of its term, particularly within the employment sector with regards to legislation, such as IR35. Throughout the run up to the election, IR35 remained a particularly quiet subject for all of the major parties as Brexit took the lion’s share of the limelight.

Should the new ‘off-payroll’ rules go ahead as planned and be extended to private sector businesses from April 2020, both client businesses and contractors need to be ready for the changes to avoid losing access to valuable skills and client projects respectively.

Earlier in the Autumn Procorre launched Next10, a new initiative that champions contractors and provides a supportive voice for the industry. As part of the initiative, and with the April 2020 off-payroll deadline ever closer, we surveyed over 500 contractors and 500 UK HR professionals to examine how ‘ready’ they are for the IR35 changes and where any misunderstandings or potential hurdles lie.

A snapshot 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’. Fifty per cent (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.

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 the HMRC 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 to £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. However, at this stage it is impossible to know exactly what will happen after April 2020.

Will the IR35 changes actually happen?

Many experts are expecting a postponed deadline for IR35. What we do know is that the new Conservative majority government does have an interest in reviewing the changes and are likely to assess what impact IR35 will truly have on Britain’s flexible workforce, who are of course a major contributor to the economy.

Brexit deadlock has seemed like an endless blockade in allowing the UK to progress and give consideration to other issues. For better or for worse, the Conservatives Brexit plan does push us to the next stage, and should finally enable the Government to begin expanding their focus onto other domestic issues.

If you are a contractor who is still yet to take action regarding your IR35 status, speak to Procorre today on 020 3432 0480 and learn about the unique support that we provide.

To learn more about the Procorre Next10 initiative or to download the full research report, visit Procorre.com/Next10

Find here out how we can help IR35 work for you.