Following recent developments in IR35 legislation announced in the 2020 Budget, many concerns are surfacing regarding whether self-employed contractors are positioned inside or outside of this complicated piece of legislation.
It has without a doubt created a difficult landscape to navigate, and organisations are advised to asses all relationships with their current contingent workforce as these changes unfold.
So we spoke to Simon Wood, Chief Information Officer at Clearvision, to discuss the potential ramifications of IR35 while offering insightful and specialist advice on the actions businesses and contractors alike should take going forward.
Understanding the impact of IR35 on the private sector
We live in a world of increased legislation and with the introduction of GDPR and CCPA as well as numerous other stringent data protection regulations enacted worldwide, so we understand more about risk and liability.
This tightening governance focus extends to our own personal employment and from April 2020 private sector firms will have to check whether contractors in their business will need to pay income tax and national insurance contributions. This is quite a seismic change as it shifts the responsibility for conducting such checks from the contractor to the organisation using their services
These HMRC reformed rules – known as IR35 – have been in place for public sector organisations contracting workers supplied through their own personal service companies since 2017 but are now coming into force in the private sector.
IR35 is causing a skills shortage
Since IR35’s introduction, there has been a big impact on the availability of contractors within the public sector. Many of them were forced out as organisations panicked, but this exodus left organisations scrambling to find enough technically skilled people to support their IT project plans, in particular plans to transition to the Cloud.
In fact, here at ClearHub, a global network of skilled Atlassian contractors and technical resources, we continue to see a high demand from the public sector to provide either professional services or contractors because there are simply not enough skilled people in the market to meet demand. And with technology moving on so rapidly, many organisations are struggling to keep up.
Many Cloud and cybersecurity professionals choose to be contractors rather than employees, and with IR35 now applying to the private as well as the public sector, many organisations will feel the pinch. To this point, I recently read an article in Computer Weekly that highlighted recent research suggesting that as many as 75% of contractors will leave their posts.
How is IR35 being received by the market?
Likewise, the recruitment sector will also be affected by recruiters needing to operate payroll for any workers they supply who work through their own company.
As part of those new rules, companies will be required to ensure that they take “reasonable care when they make a determination about the employment status of a worker”. This would effectively protect self-employed contractors from unfair decisions that force additional tax payments unnecessarily.
IR35 is a complicated piece of legislation designed to close a loophole in the tax system where workers could use a limited company structure in order to pay less tax. Where, despite a contract being in place with a limited company, the reality is more like an employer-employee relationship, and thus the worker should be taxed as an employee.
If assessed as inside IR35, a contractor will need to pay the same income tax and NICs as if they were employed. However, they still won’t get any employment benefits, like paid holiday or sick leave. In other words, they don’t get any of that ‘ peace of mind’ benefit that make employment attractive.
Today, some of the UK’s biggest companies have been criticised for policies that ban the use of contractors operating under their own limited companies, in what’s seen as a move to avoid scrutiny from these new off-payroll tax rules by either refusing to engage with those that operate under a limited company or forcing contractors to work under PAYE.
Making sense of IR35
But determining your IR35 status can be a minefield, and here at ClearHub we strongly recommend you seek professional advice because having a well-drafted set of terms and conditions or contract is simply not enough. You need to be able to demonstrate that the clauses are true to your working practices. It is critical that you act and work as a separate entity to your client to fall outside of IR
Written by Simon Wood, Chief Talent Officer, ClearHub and Chief Information Officer, Clearvision