IT sector at risk of IR35 contractor talent drain

More than half of UK IT firms (62%) admit to considering taking a blanket approach to managing the new IR35 legislation — because they don’t have the time to assess contractors individually, research by Brookson Legal has revealed.

Ahead of new off-payroll working rules coming into force in the private sector in April 2020 and coinciding with HMRC’s consultation on the changes closing today (May 28th), the research reveals how lessons have not been learnt from the IR35 roll out in the public sector.

Exploring the impact of IR35 private sector reforms on IT contractors and companies

While IR35 tax legislation was introduced in 2000, it has recently caused a significant impact in the contracting market through its introduction of the Off-Payroll rules to the public sector in 2017. HMRC has plans to implement these rules in the private sector in April 2020, affecting many more companies and contractors at a time when the UK is already suffering from slow economic growth due to Brexit uncertainty. Here we take a look at how IR35 will impact both contractors and companies. Read here

IR35

According to the findings, 85% of IT businesses agreed that the legislation will have an impact on the number of contractors they hire — 12% more than the UK average of 73%.

With IT businesses, 61% compared to the UK average of 48% confirm that IR35 will encourage them to reduce the number of contractors they hire — which will result in thousands of contractors potentially losing out on work.

42% of IT businesses expect there will be fewer contractors available

Joe Tully, managing director of Brookson Legal, said: “Whilst it is heartening that many businesses wouldn’t consider taking a blanket approach to this legislation, the fact that 62% of IT businesses are actually considering doing this is shocking considering the well-publicised impact of this approach in the public sector.

“IT firms may see this blanket IR35 approach as a quick fix but it is anything but and should be avoided at all costs. Far from saving businesses time and money, this approach will lead to serious repercussions – leaving the IT sector wide open to increased cost, a wide-scale contractor talent drain, reputational damage, and, in some cases, accusations that they have broken the law.”

Information Age’s guide to IR35 for IT employers and contractors

Information Age’s comprehensive guide to the IR35 regulation for IT employers and contractors, featuring insights from leading employment law experts. Read here

Other findings

• 89% (12% more than the UK average of 77%) of IT businesses are concerned that all or some of their contractors previously not captured by the legislation will now be, and 4% (9% UK average) don’t know.
• 38% of IT businesses (41% UK average) wouldn’t consider taking a blanket approach as they don’t want to wrongly assess any contractors for fear of losing them.
• According to 56% of the IT businesses surveyed, the top main benefit to hiring contractors in the IT industry is access to specialist skills (58% UK average).
• 49% of IT businesses (47% UK average) know their exposure to IR35 in terms of the proportion of contractors that will fall inside IR35 and have taken steps to understand their exposure/risk. In contrast, 48% (38% UK average) are relying on a ‘gut feel’.
• According to only 14% of IT businesses (24% UK average), IR35 won’t make any difference as contractors are vital for their businesses and only 2% (UK average) 4% expect to be taking on more contractors in future regardless of IR35.

When asked what their biggest fears are with regards to IR35, the top three fears were:

• Time it is going to take; and increased costs — both 36% respectively.
• Projects being delayed due to contractors leaving — 35%.
• Losing skilled contractors and freelancers; and — 34%.

Only 3% of IT businesses don’t have any big fears when it comes to IR35

“91% of IT businesses are already being asked questions about IR35 by their contractor workforce, and risk alienating and losing this workforce if they don’t have any answers. 38% of IT businesses are not considering taking a blanket approach and it is these businesses that will have the competitive advantage by showing that they are taking their IR35 obligations seriously,” continued Tully.

“The new IR35 off-payroll rules come into force in April 2020 but the time for UK businesses to put their IR35 house in order is now. By undertaking proper audits, and seeking expert advice, businesses will be able to illustrate that they are taking ‘reasonable care’ with their IR35 assessments and will almost certainly find that the impact of IR35 is not as far-reaching as their own gut feeling leads them to believe.”

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Nick Ismail

Nick Ismail is the editor for Information Age. He has a particular interest in smart technologies, AI and cyber security.

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