The Death of IT Contracting? – IR35 6th April 2020 – Off Payroll Rules impact

Private sector IR35 Off-payroll working rules are coming, the best way to be informed is straight from the horses mouth:

After many failed attempts by HMRC, it seems like they are going to kill off Ltd company contracting. I can already hear grumbling and dissention at the back but I think you should hear me out. I think this will happen unintentionally via the back door. I dont think this is an actual witch hunt, more of a incorrectly judged tax grab / “equalisation” attempt which will spectacularly backfire.

The actual stats and or verified links to hard evidence seem quite thin on the ground. However, from my own experience and research it seems that HMRC has investigative capacity for around 250 reviews per year. Included in the following link is a very useful history of IR35 cases and significant occurences and changes:

Of those it seems like they are only successful with a very very small number of them. Often trying and failing to pick a high profile example (often inexplicably a popular and innocent seeming celebrity) and then failing to prove their own standards and rules with any coherence. Ignoring their own tool when it suits them and never quite coing to a set of definitive practices and rulings.

Considering this, it could have been sensible to drop the whole mess and accept that tax avoidance not evasion, occurs in many places and publicly letting off big firms such as Vodafone, Goldman Sachs and Boots etc every year for billions of pounds while chasing the little man PSC seems a little odd.

However some sneaky genius seems to have worked out that if they take on who is responsible for payment of tax and declaring in or out from the end company ( us contractors) and reverse the order of chasing debt and responsibility then they might have more luck.

At first I thought this might be great news. Previously, contract review and trying to engage clients ( especially large London based financial instituions) in correct IR35 friendly practices has always been an uphill battle. A few issues contractors face:

  • Timesheets
    • Billing is in day rate and there should be a project scope
  • Reporting lines, being assigned a “manager” who is far too junior
  • Not being assigned project based work
    • Support Rotas , BAU tasks and ever changing requirements set daily and arcing over multiple workstreams unrelated to the inital project terms.
  • Appearing on org-charts
  • Being compelled to embark on compliance / company wide training marked “mandatory for all EMPLOYEES”
  • Work email addresses

Essentially clients give contractors the stuff of nightmares under the Control section of the “caught by IR35” guideline. This would have never changed as the client often views the engagement as another role, a seat with a human from another budget. For far too long the clients have been filling roles, conducting interviews, assessing team fit. All this is nonsense in the eyes of the legislation and is so common place / rife in the contracting world it has become a crazy sort of normal.

Well, thats not going to happen any more. Now that the justification / CEST checking etc lands squarely with the end client and they are on hook for multiple contractors being caught at once and being landed with a large bill, unsuprisingly they are starting to treat the engagement process and working practices with some actual rigour. Rigour that was deserved all along. As seen in 2008 Financial crises and a further smorgasbord of poor behaviour and a litany of dubious practices, clients ( such as financial institutions) et al will always do the minimum needed until regulated to do something else.

We already see some Banks in London declaring this basically too much of a headache to sort out and laying down an official policy to remove all Ltd Co PSC contractors before April 2020 or getting CXO office approval for any remaining needs. How hypocritical is this? Its fine until you are on the line for investigation, then your internal legal team and HR have a look and decide to do it properly will be a bit complicated and so bin it all off?

Have you ever noticed how this will have an impact to a large section of a certaintype of worker in an industry leaidng them, all to be in effectlaid off all at the same time? What like Miners or Steel workers… Nary a tear shed for hundreds to thousands of IT contractors though! Go figure.

So what options are we left with?

  • Move to Fixed Term Contract as PAYE direct with clients
  • Be declared as “In” and the bank extracts the Employers NI and PAYE etc at source
    • Will rates be increased to compensate for this? Will clients try to keep their costs the same and pass this through unapologetically?
    • Pressure exerted during the turmoil to accept being essentially perm with none of the benefits, job security, progression and training. Will they offer and acceptable uplift to compensate for this?
  • Move over to perm at some HR computed rate
    • Does this have any retrospective implications for previous contract work at the client
    • Will the rate be commensurate with the levekl of income expected by the contractor for a similar amount of work / time spent at the client?
    • How will the client themselves react to the budgetary pressure placed on the different departments with increared perm worker overhead, benefits etc
  • Continue in an “Out” contract
    • Will this still be the same contractas before. If the legal team deem certain areas need to be re specified, i.e.HMRC CEST compliance changes are required, what happens to the status of the contracts before , if any were engaged? Do these look more “In” than before

These leaves me with the final question, what dothe contractors themselves in the provate sector plan to do? Some will be IR35 Public secotr reform refugees and some will be long term contractors, which have avoided the perm games / required responsibilities that are lumped into Senior Developer roles such as reporting lines, budgeting etc.

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