IR35 legislation is coming. It looks unlikely that there’ll be a last-minute delay to reforms in the private sector, meaning medium and large sized businesses need to get their houses in order. Recent research from IR35 Shield suggests that over 50% of contractors are yet to have discussions with their client about their tax status post-April. Whilst Covid-19 has impacted the capacity that businesses have had to prepare for IR35, it’s alarming that the private sector hasn’t learnt from the chaotic scenes that were happening in early-2020.
Why was it chaotic? For numerous reasons, but some of the key themes we picked up were:
- Blanket bans on PSCs were rife, meaning that projects and programmes that had a dependency on flexible resources were left at a high risk of falling over.
- Where contractors were being asked to go ‘inside’ (where they’d previously operated ‘outside’) and stay with their current client – they often actually decided to leave, in droves. Considering the risk of being chased for back-dated tax and NI from HMRC was clearly too much of a risk.
- For the most part, businesses were just underprepared. They hadn’t formed a plan, they hadn’t communicated their approach to their contractor workforce and they were nowhere near ready to step into the assessment phase. This left all the parties in the supply chain feeling unsure about what was going to happen.
Let’s say your business is in the camp that still need to work out what they’re doing with IR35. Here’s some tips to get you started:
- Appoint someone to lead your IR35 approach. This will probably be from within HR.
- You don’t know what you don’t know. Find out where contractors are providing services in your business, what they’re working on and what their working practices are. You should be able to highlight those contractors that will be at risk of falling ‘inside’. *Spoiler alert* there’s a high likelihood it’ll be most of them.
- Decide on your strategy. As in 2020, we’re hearing of businesses enforcing a blanket ban – are you going to do the same (if so, how are you showing ‘reasonable care’)? Or are you going to individually assess each contractor? How will you educate internal teams?
- If you decide to go with a blanket ban, you need to think about what your alternative resource plans will be. Yes, you can offer contractors the option of umbrella, fixed-term or permanent contracts, but many will decline. Have you got a consultancy firm that can step-in to fill the resource void? Can you package work up to genuinely outsource parts of your project? Or can you muddle on for the time being while you spin-up a rapid recruitment campaign?
- If you’re going to individually assess, you need to do a quick assessment of your internal resource capacity to do this before April. Think about the benefits of outsourcing some or all of this process. Treat it like a project and cost it correctly.
In February and March of last year, Nine Feet Tall saw a steep increase in enquiries from line managers who were faced with the problem of seeing their contractor workforce exiting en masse. And it’s true that consultancies are likely to benefit from IR35 in the short-term – with their ability to deploy on-payroll teams seen as a viable alternative to working with contractors.
The time to act is now (well, it was a while ago to be honest). If you’ve not started planning for IR35, you need to get moving… contact EstherM@NineFeetTall.com
