Why some companies are losing it over IR35

Under the shadow of a forthcoming general election, and with the IR35 deadline less than six months away, the headlines are certainly starting to heat up about what this legislation change could mean for you and yours.

An estimated 900,000 UK-based limited company contractors from a multitude of sectors could be impacted by the April 2020 changes, when it becomes the responsibility of the engager business to define the IR35 status of their contractor workforce.

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Rather than shouldering this new responsibility, some larger organisations, in financial services in particular, are now opting not to extend the projects of contractors who provide their services via a personal service company, limited company or other intermediary beyond early next year. Essentially, this leaves contractors with the ultimatum of either becoming PAYE or having to seek work elsewhere.

The contracting industry and the flexible workforce it’s made up of is a major contributor to many businesses and the overall UK economy, so what’s causing some organisations to take a blanket ban approach?

We recently surveyed 500 contractors and then partnered with Censuswide to survey over 500 UK HR professionals to examine the state of play ahead of the April 2020 deadline.

Contractors not as compliant as they think they are

Invoicing multiple clients throughout the tax year is, naturally, going to help any contractor maintain their career contractor status. However, when we asked contractors from a number of different sectors about the scope and nature of their activities, we found that 57% work on a single contract at any one time, and one in ten said they hold management duties over employed staff.

If a contractor is also based within the office of one of its clients, they are more likely to be recognised as an employee under the eyes of the new legislation – nearly a quarter (24%) of those we surveyed work solely on site for their client. In addition, over half (52%) of the contractors said they use equipment provided by their client. Although they cited security concerns as the reason, this is still potentially an IR35 issue.

Taking these contractor findings into account and with less than six months to go, how are the HR departments of engager businesses, who must now ensure compliance, coping?

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HR Departments creaking under the strain?

Since the changes to IR35 regulations in the private sector were unveiled, nearly half (47%) of HR Managers said they’ve been ‘drowning in paperwork’. Planning for the changes has ‘taken over their time’ (47%), and half said they’ve found it difficult to concentrate on other tasks.

It’s not surprising then that the majority (84%) of HR professionals are worried about the drain on resources that the added administration could have, should they look to retain their current pool of contractor talent.

Clearly, HR professionals are concerned about the added workload, but surely the greatest concern of all is that many HR professionals (67%) predict that after April 2020, it will be harder to recruit the necessary skills for their organisation. This begs the question of what possible long-term effects this could have on the economy, and the UK’s position on the world stage? In fact, the majority (68%) of HR professionals are worried that highly skilled contractors will be driven abroad to the advantage of their competitors.

Procorre’s position on the findings of the research is that there is no ‘silver bullet’. Both engager organisations and contractors alike need to be making the necessary preparations for April 2020 to avoid losing access to valuable skills and client projects respectively, but it’s a case of taking a pragmatic, sensible approach.

We are working with our contractors and clients in the private sector to ensure that the due diligence and process is in place for a smooth transition, and we encourage others in the industry to do the same.

Written by Anne O’Donnell, CEO of Procorre

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