April 2020 - the rigorous implementation of IR35 to the private sector

Sam Turner 29.10.2018

Times ahead are looking tricky for contractors with IR35 changes, Brexit and a recession due. This said, it would be foolish for private sector contractors to make any hasty decisions as to their future.

The consistent highs and lows of contract risk recruitment

After a decade in risk recruitment I have seen some high times and some low times. With the introduction of Basel 2, 2.5 and 3, we have seen bumper periods of recruiting within the bolstering of a three lines of defence model, RNiV, CVA, IRC, AMA, IMA, IMM, NMRF, xVA (CVA, FVA, DVA), SR11-7, SACCR, E/S. And under Basel 4, we have added a few more acronyms to describe other acronyms eg. BCBS239, BCBS261 etc.) it’s a minefield trying to keep up!

With the recession of 2008 – 2009, called on Wikipedia the “Great Recession” refers to it lasting 5 1/4s of negative growth rather than “we had a whale of a time.” And with the questionably shambolic Brexit negotiations and the ever looming leave date without an agreement, as well as the fact that recessions happen about once a decade, are we in for a torrid time? I remember an article after the recession hit about a man who sold his house, moved his family into a caravan, bought gold and waited for the price to increase dramatically. I thought that to be very ballsy and probably based on sound economics (and it worked) but still…would you take a gamble like that with potential disaster around the corner?

Will the private sector learn from the mistakes in the public sector?

This blog is not so much about recessions and Brexit but was originally going to be around IR35. HMRC aren’t changing the rules around IR35 - they are just implementing them a bit more rigorously. The implementation in the public sector was generally criticised for its blanket approach of putting most people inside IR35, meaning the end client, i.e. the organisation you are working for, doesn’t agree that you have a business-to-business relationship.

Moving forward (from April 2020, as revealed in the Autumn Budget), it is going to be the client who decides whether the contractors are inside or outside IR35 and although people might fight the decision, it’s all about risk and who wants the burden. I guarantee that the clients aren’t going to want to open themselves up to that risk with HMRC and its tax implications. £1.2 billion is the estimated gain by the government from “hidden employees”, but TFL found out the hard way when contractors just decided not to work and the company couldn’t operate.

They had to have a rethink about many roles and whether they should be outside of IR35. Further to this, there is the requirement for employers to take due care and attention when assessing whether a role is genuinely a business-to-business relationship or just a hidden employee; potentially the private sector will have noticed some of the pitfalls from the public sector.

Don’t make any rash decisions just yet...

With many large organisations moving more of their workforce to Paris and Frankfurt, coupled with the slow but steady migration of more operational roles to cheap cost locations like Poland and India, as well as the fact many contractors could be 25% worse off in their income having to now work PAYE or through an umbrella company and (finally) with currently no Brexit agreement and a recession due, shall we all start boarding the Winnebago bandwagon, buying as much bullion as we can and moving to a now underfunded farming belt?

Whatever you decide as a contractor, do not be hasty. The job market is not as buoyant on contract as it is on the permanent side and you might be entering a very tricky job market. So you might have a reduction in income compared to what you were on if you are suddenly put inside IR35, but you will be employed and probably still on more of a take home than your permanent counter-parts. If you do what TFL contractors did and just leave, there are probably many people who can take your place because currently people don’t want to be relocated to Paris or Frankfurt so are entering the job market in droves.

Contracting is not dead; just look at all the regulatory driven acronyms listed in the opening paragraph…you will still be needed and still paid a premium. It might not be as good as you have had it, but being employed for hundreds of pounds per day is still pretty good.

Sam Turner's picture
Manager | Risk Management
sturner@morganmckinley.co.uk

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