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Enterprises risk trivialising the skills and experience of the IT contractors they engage by forcing them onto permanent contracts to ensure compliance with the incoming IR35 tax avoidance reforms, it is claimed.
In the run-up to the reforms coming into force within the private sector in April 2020, Computer Weekly has reported on how a slew of high-profile enterprises are seeking to achieve IR35 compliance by phasing out their use of limited company contractors completely.
Chief among them are Lloyds Bank, HSBC and Barclays Bank within the financial services sector, and GlaxoSmithKline within the pharmaceutical space, as well as countless others in the technology market that are known to have taken a similar stance.
The idea is that phasing out their use of personal service company (PSC) and limited company contractors means they will be relieved of the added administrative responsibilities that the IR35 reforms will impose on them.
This is because, from 6 April 2020, medium to large enterprise will assume responsibility for determining whether the IT contractors they engage with should be taxed in the same way as salaried, permanent employees (inside IR35) or as off-payroll workers (outside IR35).
According to James Poyser, CEO of online accountancy consultancy InniAccounts, the stance some enterprises are taking on IR35 risks downplaying the important role of contractors in delivering digital projects within these organisations.
“Contractors are the people who generally deliver change within organisations… and blocking contractors from engaging you as a limited company means you are demoting them, and treating them as nothing more than temps,” Poyser told Computer Weekly.
“You’re talking about people with 20 years or more of specialist experience that have built their own base of clients, invested in their own certifications, their own training and built a business around the strength of their reputation.
“These large organisations are taking a stance that suggests [these individuals] are basically temps, and should be taxed in the same way as an employee. But they won’t be getting any of the benefits of being an employee, won’t have any provisions for their future, and can’t invest in themselves.”
Conferring between contractors
InniAccounts recently brought to market an online reporting tool, hosted at www.OffPayroll.org.uk, that allows contractors to share feedback anonymously in a public forum on how the firms they engage with are responding to the forthcoming reforms, and grade them accordingly.
“We are tracking a couple of hundred companies to understand what their position is with IR35, and all we’re trying to do is basically make it easy for contractors and consultants to find clients who are assessing IR35 fairly,” said Poyser.
“If you speak to any professional contractor worth their salt, that’s all they really want. They know they’re operating in a way that puts them outside of IR35, and they just need their end clients to play the game and assess them fairly.”
At the time of writing, the tool has been in place less than a fortnight, but there are already some notable trends emerging from the data and feedback that contractors are sharing with each other online about their experiences.
“What we have found is the larger the organisation, the more likely they are to have blanket policies in place that freeze out people who are contracting in their own right,” said Poyser.
“There are a lot of rogue organisations out there, and it seems to be the larger ones causing the most problems.”
Other details have also begun to emerge in the feedback about other issues that contractors are having to deal with ahead of the reforms coming into play.
“Some really grotty things that have come out, including one large organisation that is allegedly putting contractors on seven-day notice periods, but if the contractor wants to leave, they have to give the employer 30 days’ notice,” he said.
“There are also, of course, reports of day rates being pushed right down and some organisations pushing for 60-day payment terms.”
Administrative overload within enterprises
According to Poyser, it is not difficult to fathom why some larger enterprises are approaching the IR35 reforms in the way that they are, given the additional administrative burden it will place on them.
“I can absolutely empathise with enterprises and understand how they have gone there because if you look at the notes that accompanied the upcoming budget and the off-payroll legislation, [it states] there are 60,000 impacted clients out there and 20,000 agencies, and between them, they’re looking after 400,000 contractors,” he said. “There are huge amounts of work to be done to access them all and understand their IR35 status.”
At the same time, the resources that HM Revenue & Customs (HMRC) has given enterprises to assist with these assessments have been weighed and found wanting on multiple occasions, as previously documented by Computer Weekly.
This is both in terms of the supporting literature and guidance that HMRC has issued in relation to the reforms, and its Check Employment Status for Tax (CEST) online IR35 status checker tool.
Even so, it is in the best interests of all enterprises to take their time to assess the contractors they engage with properly, from both a talent retention and business productivity perspective, said Poyser. “I think there is a lot to be gained for the reputation of organisations in the technology community that get this right,” he added.
Poyser is one of many IR35 stakeholders backing calls for the government to call a halt to the April 2020 roll-out to give enterprises more time to prepare, and to guard against more of them opting to “knock contractors out of their organisations” to achieve IR35 compliance.
Read more about IR35
- Government honours pledge to embark on a review of its plans to extend the IR35 off-payroll rules to the private sector that will focus on ensuring the changes are introduced in a “smooth” way in April 2020.
- With six months until IR35 tax avoidance reforms are extended to the private sector, a number of financial services firms are thinning out their contractor workforce – is that the way to ensure compliance?
There had been hope that the government’s promised IR35 review, which was confirmed on 7 January 2020, would pave the way for such a delay, but it was not to be.
“Even a six-month delay would be great now that everyone’s got a taste of what could happen if this isn’t done properly,” said Poyser.
For instance, contracting stakeholders have repeatedly warned about contractors walking off IT projects in the private sector if their engagers are deemed not to be conducting fair IR35 assessments.
“The risk is that the reforms are delayed too long and we’ll be having the same conversations this time next year,” said Poyser, “whereas a shorter delay would just give everyone the breathing room needed to get everything sorted.”
In terms of the how the reforms are likely to affect the long-term prosperity of the IT contracting sector, Poyser is optimistic that the market will bounce back once the dust has settled.
On this point, it is also important to bear in mind, he said, that for every HSBC or Lloyds Bank that makes the news, there are many other enterprises that are not being talked about because they will continue to engage contractors on outside-IR35 terms.
“There are a few names that are emerging that seem to be getting this right, and they will be in a really good position come April because it will be business as usual for them,” said Poyser. “There will be no interruptions to projects or their workflow.
“In other companies [that have decided to axe contractors], there will be people sitting at the helm of those organisations, scratching their heads in a few months wondering why all their projects have stopped. And they will soon come to realise that is because they made a quick decision about IR35.”
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IR35: Impact survey suggests downturn in use of HMRC CEST tool by enterprises
IR35 reforms: Contractors report widespread blanket bans and project disruption in impacts survey