IR35 reform delay: how tech companies and contractors should respond

This will come as a massive boost to those within the tech industry, who criticised IR35 reform long before the outbreak of Covid-19.

Indeed, referring to the announcement, Bev White, chief executive of Harvey Nash Group, said “this is great news for the sector and we are already seeing contractors coming back in who were leaving. It has reversed the trend overnight.”

The decision came amongst growing concern that the legal changes would make the perilous economic situation created by the virus, even more difficult for businesses.

Steve Barclay, chief secretary to the Treasury, announced that the reform would now be enacted on April 6, 2021.

“This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals,” Barclay said.

“This is a deferral, not a cancellation, and the government remains committed to introducing this policy”.

The government’s delay leaves companies some breathing space, with more time to build up suitable contingency packages, but also in a state of limbo, caught between reversing measures pre-emptively taken and further preparation for the impending regulation.

We asked some experts to give businesses advice on how to proceed going forward, both in response to present demands and in anticipation of the coming legislative changes.

What does the Treasury coronavirus package mean for tech business?

How will Rishi Sunak’s Treasury package help UK tech businesses survive the coronavirus disruption over the next few months? And what are the implications for delaying IR35? Read here

Revoke blanket bans on crucial personnel

Paul Wright, head of the technology practice, Odgers Interim has some very important advice on how companies should respond to the regulatory respite- revoke any blanket bans on contractors.

He says “businesses have now been given some breathing room to get their houses in order and I cannot stress enough how important it is for them to take this time to revoke any blanket assessment statues they have enforced and re-evaluate their contingent workforce needs.

“As the impact of Covid-19 steers the economy into unchartered waters, the UK’s freelance, independent and contractor workforces will be more important than ever for tech firms – which already rely heavily on this industry.”

Wright also sees contractors and freelancers as the solution to absences in the permanent workforce cause by Covid-19.

“Many organisations will not only need to procure the specialist skillsets of contractors and independents to help guide them through increasing levels of disruption but will also need to call upon their support to fill in for permanent staff who are either self-isolating or having to look after family members.

“It is therefore paramount that the tech industry uses this time to its advantage and makes greater use of their contingent workforce now it will not be impeded by IR35 reforms. They should also use this time to implement sensible IR35 internal processes so that they can gain the most support from this industry when IR35 does land in 12 months’ time.”

Do not become complacent in the face of this pause

Although making sure that businesses have the right workforce in place, it is equally crucial that businesses don’t lose track of the long-term consequences of the reform.

Andy Vessey, head of tax at Larsen Howie says: “Given that end clients and recruiters have now another 12 months to prepare, I would expect the 12 month soft landing assurance previously promised for this year to be withdrawn when the reform is implemented in April 2021, particularly as there will be a need to recoup as much tax revenue as possible to repair the huge dent in the Treasury’s coffers caused by Covid-19. In other words, the market has twelve months to get this right. After that, there will be strict enforcement.

“For those contractors that were concerned that HMRC might take retrospective action, all bets are off now until April 6, 2021. Anyone who has received an ‘inside-IR35’ status determination, having previously self-assessed themselves as outside and which HMRC may have now caught wind of, may now find the Revenue using this time to target them over the next 12 months. We may well also see HMRC IR35 compliance activity ramped up in 2020/21 because of the fact that anticipated PAYE & NIC receipts arising out of the operation of the off-payroll rules will need to be recovered elsewhere. Contractors should therefore ensure they work with end-clients and recruiters to change their working practices, have tax fee protection or, even better, tax loss insurance in place for such an eventuality.

“End clients and recruiters should certainly not take their foot off the pedal but maintain their momentum to be well prepared for the inevitable on April 6, 2021, working to embed new tools and working practices across the entire supply chain.

“Additionally, it will be interesting to see if those larger firms that have somewhat arbitrarily imposed blanket bans on PSCs, use the extra time and pressures on their business to take a more informed and balanced approach that uses the various assessment tools and insurance solutions out there to protect their risk without unnecessarily increasing their costs or ability to deliver projects. Use this time wisely and productively.”

Vessey’s warning to businesses is that a balance must be struck between present workforce needs and future planning.

Why some companies are losing it over IR35

If you’re an experienced independent IT contractor, you’re likely waiting with bated breath for the latest developments ahead of the IR35 changes coming into force in the Private Sector on 6th April 2020. Read here.

Make suitable adaptations

Chris Thompson, partner, Gateley Legal employment team, advises businesses to adapt contracts, some of which may have been changed in the wake of the IR35.

“The changes have been rescheduled for April 2021. Whether there will be further delays or even changes to the reforms remains a possibility given the impact that COVID-19 is having.

“Given this uncertainty, it will be sensible for contractors and their clients to retain their existing pre-April engagement terms and keep developments under review.

“Where an employment business has already signed up to terms which require them to put workers on payroll due to a determination that IR35 applies, contact should be made with their clients as soon as possible to agree if these arrangements can be changed due to the reforms now being delayed.”

Seek professional legal advice

Claire Brook, employment law partner, Aaron & Partners suggests that because of the rapidity of fluctuations in regulation, companies should seek legal advice if there is anything they are unsure about the IR35 reform.

“We have never seen a time where so many employment law changes have come into place so quickly, and we are seeing new developments each day.

“It’s been positive to see that during this time employers continue to seek solutions that will provide the best outcomes for their employees and businesses working together to support the community.

“It is important to reiterate that given the pace of legal change it is vital that businesses seek professional advice at this time to keep up to date.”

 Advice summary

• Revoke blanket bans on PSCs (Personal Service Companies) and use of contractors and freelancers.

• Use contractors to fill skill gaps and holes in the workforce during the current outbreak.

• Continue preparation, but not enforcement, of contingencies in anticipation of legal changes on April 6, 2021.

• Balance present recruitment needs with future regulatory requirements.

• Adapt contract arrangements, reverse contract changes made pre-empting the reform.

• Plan for the strictest enforcement of the changes in 2021.

• Embed new tools and working practices across the entire supply chain.

• Seek legal advice if uncertain about laws and changes, educate staff about IR35 reforms now.

 A future concern

According to the Office for National Statistics data, over the last 10 years, the number of IT contractors has grown on average by 8% per year-on-year, from around 75,000 in 2009.

However, there was a 2.4% fall in IT contractors to 121,989 in 2018 compared with the previous year. This drop is likely to have happened because of a change similar to the IR35 reform was introduced to the public sector at the time.

Based on this evidence is it plausible to predict that freelancers and contractors, so vital to the UK tech industry, will see a similar, if not larger, drop in numbers in the private sector.

Undoubtedly this will become a massive concern for the tech industry once the government provisions for Covid-19 end next year.


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