How IR35 could affect the UK contracting economy

Once the dust settles and we (hopefully) come out of the third national lockdown, the main focus on the UK contracting economy will once again revert back to IR35. After being postponed by a year due to the coronavirus pandemic, the off-payroll reforms are due to come into effect in April this year.

If you are reading this, you probably have at least some understanding of the IR35 reforms. If not and you want to find out more, our Knowledge Hub has a wealth of information to help you.

In this article, we’re taking a look at how IR35 could affect the UK contracting economy, assuming of course that the reforms still go in ahead in April as planned (spoiler alert: we think they will). In order to get a real lay of the land, we’ve sought professional opinions from IR35 experts both inside and outside the business.

Will IR35 be delayed again?

As stated above, here at Kingsbridge we think it’s very unlikely that IR35 will be delayed again, you can read why here. Ryan Dawson, Kingsbridge’s IR35 Project Manager comments that “personally speaking, unless there is some specific indication to the contrary, I can’t see there being further delays due to the vaccine being actively rolled out and obviously how valuable the Government sees the off-payroll reform being to raising revenue and aiding the recovery.”

Matt Tyler, IR35 Consultancy Manager at Kingsbridge echoes this view, stating:

“I personally am of the opinion that the legislation will indeed be coming in to force on the 6th April with only the slimmest of chances that it’ll get delayed again. The Government needs to recoup quite a bit of funds as a result of the furlough scheme and Covid in general, and the change to IR35 is a fairly quick and (reasonably – from HMRC’s perspective at least!) painless win.”

IR35 and the Coronavirus

The biggest news story of 2020 – and of in fact of 2021 so far – the COVID-19 virus, caused shockwaves throughout the nation. The uncertainty caused many projects to be delayed and contracts cancelled, but also areas of growth, such as in the IT industry to support offices moving to home-working. James Poyser, CEO of inniAccounts and founder of IR35 watchdog site offpayroll.org comments:

“I think the only thing that’s certain over the coming months is uncertainty. When it comes to IR35, there is a huge amount of variability - some sectors have fared better through Covid and Brexit, others are facing unprecedented levels of change and transformation, and some are on their knees.”

“Therefore, the response to, and impact of IR35 will vary greatly – and we have seen this via offpayroll.org.uk. If an organisation is still in crisis mode, it’s likely that delivering fair IR35 determinations will be low down the priority list and will remain that way until they see a brighter outlook.”

Andy Vessey, Head of Tax at Kingsbridge, also notes that:

“In difficult and uncertain times businesses turn to contractors to provide them with skills and expertise on a flexible basis and this seems to be borne out during last year when, according to REC, the demand for contractors increased month by month. Due to the clear and growing need for flexible workers, there is a strong case to be made that businesses will do what is required to successfully navigate the off-payroll rules.”

In a time of continued uncertainty, hiring short-term contractors, as opposed to full-time employees (and having to pay for the added benefits that comes with it), should certainly appeal to some businesses, as the longer-term effects of the coronavirus pandemic continues to impact the economy.

The future of contracting

While both coronavirus and the IR35 reforms have inevitably resulted in some hanging up their contracting shoes, what was clear from who we spoke to was that it is expected the need for contractors long-term will remain. James Poyser comments:

“What end clients and contractors alike need to focus on is the medium term. We’ve witnessed 9/11 and the 2008 financial crisis, where there was an acute reduction in contractor numbers, as we’re experiencing today. But it sprang back, and the return was fast and profound – the contracting market returned to pre-crisis levels 18 months ahead of the permanent market. We expect the same thing to happen as we emerge from this latest economic challenge”.

Andy Vessey concurs, “having had an extra year to prepare, hopefully many more firms will be ready to carefully consider the contractual and working arrangements to enable contractors to sit outside of IR35 but only where it is legitimate to do so, of course.”

“The dystopian economic landscape that we will face when we emerge from our Covid bunkers, will provide an incentive for businesses to look to make savings wherever they can. Saving employers NIC of 13.8% is a strong motivation to ensure that as many contractors, as are legally possible, sit outside of IR35.”

Contractors, recruiters and end clients must prepare for IR35

The key message we got from everyone we spoke to is that contractors, recruiters and end-clients alike must prepare for the reforms. James Poyser remarks that “for end clients, now is the time to look at getting fair determinations in place, as when the market rebounds and demand returns the bargaining power will be back in the hands of contractors – and there will be less of them due to those exiting the market this year.”

“The last thing you want is for projects to grind to a halt, particularly if we are due to experience a re-run of the Roaring Twenties, as some are forecasting.”

Matt Tyler, meanwhile, warns time is running out for firms to sort an IR35 solution. “There is not much time left to get a compliant and effective IR35 system in place now – the best time to have such a system in place was two months ago. The next best time is right now.”

How can Kingsbridge help?

Our award-winning status tool has been developed by our very own Head of Tax Andy Vessey. For £50 plus VAT, you get an instant status determination, which takes a full look at your contract and working practices to give you a report and a comprehensive report.

If the result is borderline, the case is passed to our in-house IR35 specialists for manual review. Find out more about the tool here.

We also offer IR35 Protect, this policy flexes to cover whoever holds the liability, which means it covers your fee-payer for investigations into post-April-2021 contracts, but you for any earlier ones. The premium protect policy also gives you access to the Kingsbridge Status Tool, enabling clients to get an accurate view of your IR35 status.

Find out more by clicking here, or giving our friendly team a call on 01242 808740.