IR35 – it’s not all bad!
The implementation of IR35 to the private sector is showing no sign of stopping, but is it all bad news? If like me, you are searching the internet for any nugget of information that might show a silver lining, you might just be in luck.
Let’s start at the beginning – IR35 legislation was initially introduced in April 2000, to address concerns that workers who were providing their services through intermediaries (such as limited companies), were in some instances, ‘disguised employees’ and were, therefore, avoiding paying employee income tax and national insurance contributions.
It has been the responsibility of the worker to decide whether they are working inside or outside of the IR35 regulations. However, from April 2020 this responsibility will fall to the employer. Companies will need to assess their workforce and determine whether each role is inside or outside IR35. The legislation states that all companies must take ‘reasonable care’ when assessing, simply classifying every role the same way will not work. If a non-compliant procedure is followed the financial penalties can be significant.
This spells bad news for a whole host of private sector companies – if they wrongly deem a role outside of IR35 they could face a substantial fine. This has led to an unfortunate ‘knee jerk’ reaction from many companies, enforcing a blanket ban on all limited company contractors/Personal Service Company (PSC) and not extending contractors they are currently engaged with. If all roles are treated as inside IR35, then there is no risk of repercussions.
Now for the good news. This doesn’t mean that contracting will be a thing of the past, something future retired contractors will refer to as the ‘golden age of employment’. The UK needs a flexible workforce and there are only so many permanent positions that are financially viable to offer.
So, what’s going to happen? The issues many contract workers are facing are not new, these IR35 changes were introduced into the public sector in April 2017 and the response from the public sector was exceedingly similar to how the private sector has responded. Approximately 75% of the public sector had the same ‘knee jerk’ reaction and stopped engaging with contractors. Now they do engage and release roles that are both inside and outside of IR35. This is not to say there haven’t been issues, the HMRC’s Check Employment Status for Tax (CEST) tool, for example, has been under scrutiny in recent months, notably in a story about the NHS.
That aside, it shows that after the initial panic things can return to normality. This is good news for contractors, although many may need to hunker down and brave the ‘perfect storm’ that IR35, Brexit, a general election and Christmas has created. I’m quietly confident that by quarter two of next year the contract market will be much more stable.
For more information visit the government’s IR35 web page here, and see its assessment tool (CEST) here.
As an employer how can we help?
Danos Consulting is here to support you, we can help ensure that you understand the legislation and that you have the right processes in place. We can support you with:
- Current contractor auditing
- Analysis of IR35 and the reforms
- Detailed guidance on implementation
- Process and procedures
- Delivery of cross-functional training
Don’t delay, contact us today, and let’s discuss your IR35 solutions to ensure that you comply.
Solutions for you as a Contractor
Some of our clients are open to taking on contractors, opting out of IR35 if there are clear deliverables within the project. Other larger firms have more of a blanket approach of not taking on limited company contractors outside IR35, as they are unable to review all roles on a case by case basis as required.
The likely hood is that we will begin to see an increasing number of contracts inside IR35, and although there are some solutions out there that will let you keep your limited company, would working through an umbrella be such a travesty?
Most umbrella companies advertise that when you are considering a new contract you should look for around 20% more than your standard rate to bridge the gap. Working through an umbrella also gives you access to a lot of the benefits that come with being a permanent employee.
If you would like more information on the contract market or have questions regarding IR35, Danos Consulting can offer a range of solutions tailored to your personal needs. Contact us today.