Tag Archives: IR35

News

IR35 reforms one year on: 60% of contractors report drop in income

Caunce O’Hara, the specialist insurance broker for freelancers and small businesses, have released the results of their survey on the impact of April 2021 IR35 reforms on contractors.

The survey looked at whether contractors felt the reforms were of benefit, whether the reforms had impacted their earnings, whether they had seen an increase or decrease in work opportunities since the reforms, and whether there had been any change to their work-life balance.

With the first year anniversary of the Private Sector IR35 reforms approaching, the research has revealed 60% of contractors reported their income had been reduced due to the change in legislation.

The overwhelming majority (74%) felt the system benefited neither the hiring business or the contractor, with just 4% saying they would keep the regulations as they currently stand.

A further 60% of respondents reporting they had seen a decrease in work opportunities as a direct result of the rule changes. Despite this decrease in opportunities, 79% of those surveyed said they were either working the same amount of hours or more as years previously.

Dominique, one of the survey respondents who works in business consultancy, said she used to have 52 weekends a year and now she is lucky to get just 10. She explains: “Previously I ran a company that had a good turnover, now I have to work for a contract inside IR35, then use my spare time to keep the company trading. So I work at weekends and holidays as well to make sure my family is provided for and the company remains trading.”

Despite this, Dominique is hopeful that the worst is behind them in terms of lower profits now that IR35 is a little more stable, however she says this is dependent on the government being willing to provide the necessary support. She reported that many past colleagues had already given up their companies and are now working as full-time staff for private companies, as they have families to support and simply cannot afford to “argue” with the system.

As part of the reforms, medium-to-large private sector companies became responsible for determining whether the limited company contractors they engaged with should be taxed in the same way as salaried employees (inside IR35) or off-payroll workers (outside IR35).

In principle falling within IR35 would mean that contractors would receive the benefits of PAYE workers. Yet, of those respondents that had moved into umbrella companies or onto end-client payroll, 46% said they didn’t enjoy any perks by working this way. Those who did valued holiday pay and pension plans the most.

For contractors like Yvette, who works in HR & Learning, umbrella company benefits is one of the major issues with the current system. She told Caunce O’Hara that currently she pays tax at the same rate as an employee but with no benefits such as sick pay, holiday or pension, but with all the extra costs of running a business and the time commitment.

Yvette went on to say that the biggest change the government could implement to make the system fairer is to “make it clearer for a company to identify the difference between inside and outside IR35”.

Of all the contractors that Caunce O’Hara spoke to, nearly two thirds (64%) were currently engaged by either a public sector body or a medium to large organisation, meaning the decision of where they fell within the reformed legislation was taken out of their hands.

And according to Liam, who works in IT, some companies are not taking sufficient care when determining status. He told Caunce O’Hara how the company he was working for has a blanket ‘insideIR35 or leave’ policy. He went on to say that many clients don’t want to “take the risk” of doing proper assessments.

Rob Rees from Caunce O’Hara adds:

“Six months ago, it was reported that six in 10 medium sized firms were operating without any IR35 off-payroll process in place, and our research suggests contractors are being impacted by this. Almost three quarters (72%) of contractors we spoke to felt that hiring businesses are not taking reasonable care when it comes to determining the status of an engagement.

“This, combined with the fact the majority of contractors are earning less and seeing fewer work opportunities, suggests few contractors have benefitted from the wide-reaching IR35 reforms one year ago.”

Recent data from the ONS on the current Labour force shows that the number of payrolled employees hit a record high of 29.5 million in January 2022 – a year-on-year increase of 4.8% which equates to about 1.35 million people becoming payrolled employees since January 2021.

Any contractors who, in the wake of the reforms, opted to close their limited company to take on a permanent position or join an umbrella company would be included in this figure.

That same ONS data also reveals that 793,000 people stopped identifying as self-employed between the first quarter of 2020 and final quarter of 2021.

Contractors and hiring businesses can find the full results of the survey, as well as support for navigating IR35, at the Caunce O’Hara website.

IR35 & Contracting, News

IR35 countdown is on: Leading legal, tax and insurance experts collaborate in event to support businesses

Specialist insurance broker, Kingsbridge, is bringing together leading legal, tax and insurance experts for an interactive event to provide employers, HR teams and recruiters with IR35 guidance as the private sector roll out date looms.

Led by Ann Swain – CEO of the Association of Professional Staffing Companies (APSCo) – the free to attend event will feature two panel discussions:

– Fresh Perspective: James Poyser, CEO, off-payroll.org, Andy Chamberlain, Director of Policy, IPSE, and Andy Robinson Business Development Director, Kingsbridge, will provide invaluable first-hand insights into how all areas of the supply chain should be approaching the 2021 changes.
– Tax & Legal: Andy Vessey, Head of Tax, Kingsbridge, Tania Bowers, Legal Counsel and Head of Public Policy, APSCo, and John Chaplin, Associate Partner, EY, will discuss the latest legislation and provide practical advice on how all parties in the contracting supply chain can best utilise the next six months to prepare for the reform.

The event will also provide those involved in hiring and managing contractors with one-to-one consultations with Kingsbridge’s expert consultants.

Andy Robinson, Business Development Director at Kingsbridge commented:

“While 2020 has been a difficult year, we’re at a stage where planning for the future is critical, and for anyone involved in the supply and management of contractors the most important topic of conversation at the moment is IR35. While the delayed extension was certainly beneficial in some aspects – with our recent research revealing that many employers had reversed blanket ban approaches – the global pandemic has certainly been a distraction for IR35 preparations. With just six months left, now really is the time to get to grips with your contractor determination processes. By bringing together leading industry experts on one platform we hope to equip as many employers and recruiters as possible with the information and guidance they need to ensure we all get IR35 right this time around.”

The event will take place on 12th November – Register for your place today https://lp.kingsbridge.co.uk/virtual-industry-insight_pr/

IR35 & Contracting

Service alternatives to keep businesses IR35-proof

With UK businesses still preparing for the upcoming introduction of IR35 and many brands deciding to ditch contractors, software testing company Edge Testing Solutions has identified service alternatives that businesses can use to ensure they remain IR35-proof.

The contractor market has for years provided a readily available source of expertise for the IT sector. It has provided niche technical skills, available for as long as the client requires and typically at short notice, thus supporting reactive as well as proactive resource demands. But if under IR35 the risk of using contractors outweighs these advantages, what are the alternatives available to organisations?

Consultancies and vendors are starting to provide a number of service alternatives to a traditional contractor solution which ensure that their customers are fully protected from IR35 risks. A few examples include:

1. A full Managed Service – the managed service approach suits those companies that require a strategic test partner which can be an ideal and low-risk vehicle for moving away from a large contractor-reliant model.

For the client, a Managed Service means they can outsource specific processes and functions with the objective of improving operations or reducing costs. The client and company are bound by the contractual service-level agreement which defines the performance and quality metrics of their relationship.

Another advantage of the Managed Service is knowledge retention. This is achieved through documentation to capture client system and business knowledge – a key advantage over the contractor model where any knowledge is lost upon completion of the contract.

2. Graduate and Apprentice-based schemes – another option for an organisation is to ‘grow their own’. This focuses on building up a permanent internal test pool to replace the contractor model using graduates or apprentice-based schemes.

However, this approach comes with its own challenges with the added effort required to identify, employ, mentor and train ‘new blood’. There is where providers are training employees on the client’s site with support, mentoring and pastoral care. After an agreed period, typically twelve months, the client can then offer full time employment to the candidates, with no additional recruitment fees. We’ve already implemented this service with clients such as Deloitte, Gatwick Airport and Nimbus Cloud taking it up.

3. Replicating the contractor model – a key advantage of the contractor model has always been the ability to rapidly take on and then remove additional test effort at very short notice. Although this might seem a challenge to replace using some form of permanent workforce, there are excellent effective and efficient solutions available at a much lower comparable cost than the contractor model.

An example is a Digital Test Hub which provides continuous on-demand low-cost testing service utilising teams based across the UK. Rates, which start at £210 per day are highly competitive against average contractor rates and are fully IR35-compliant. Service take-up can be achieved quickly and with the added flexibility of ramping the service up and down as demand requires.

In addition, there is no minimum or maximum team size – the client service dictates what is required, when it is required and the size of the team.

Richard Mort, a director at Edge Testing Solutions, comments: “We are seeing a slow but steady awareness dawning on our client base that IR35 could severely impact and possibly impede enterprise growth through the introduction of yet another business risk. The contractor market has for years provided a readily available source of expertise for the IT sector. It has provided the niche technical skills, available for as long as the client requires and typically at short notice thus supporting reactive as well as proactive resource demands. However, IR35 mitigates these advantages and for some organisations makes using contractors an unpalatable approach.

There’s going to be the biggest game of musical chairs in the contracting industry as every contractor tries to grab a seat with ‘outside IR35’ written on it. From April next year their options will be limited. There have already been reports of large-scale users of contractors, such as banks, saying they will not engage off-payroll workers from next April but that may turn out to be a knee-jerk reaction similar to what was seen in the public sector when the rules were first introduced.

We could well see a more dramatic fall in the number of IT contractors this quarter and year. In those cases where the IR35 status of contractors is borderline, private sector organisations likely will err on the side of caution and refuse to engage those contractors off-payroll. Despite some of the claims being made, however, it seems unlikely that the rules will be the death knell of contracting. Much will depend on whether HMRC takes tough enforcement action and publicly hauls an organisation over the coals. If that happens, it likely will have a chilling effect on the use of contractors. If enforcement action is not forthcoming, the impact of the reforms could be more limited.

The IR35 challenge need not mean the end of a flexible external test workforce though. There are solutions available to fit each organisation’s ongoing tactical and strategic resourcing needs. IR35 may, in many ways, streamline and add greater efficiency to future resourcing models.”