Posted on Monday 3 February 2020 by Ulster Business
At the start of this year the government launched a review into the changes to IR35 legislation which will affect medium and large private sector organisations and have far-reaching impacts on the way they engage with non-permanent workers, writes John Moore, managing director, Hays NI.
The timeframe between the review and the reforms coming into effect in April is shorter than many would have liked but with the reforms now on the horizon, companies need to act, particularly those in sectors such as technology, construction and finance where use of contractors operating as personal services companies (PSCs) is common.
At a basic level, the reforms to IR35 legislation shift the responsibility of determining the tax status of personal services company workers to the company that engages them where previously they could self-certify. The original rules required the freelance contractor to determine their tax status, but HMRC believed non-compliance was common.
Now, if a person’s assignment falls outside of IR35 legislation, they are deemed to be self-employed, so gross payment will be made to the PSC. But if the assignment falls inside of IR35, the professional should be treated as an employee, applying PAYE and NIC deductions from their payment. In simple terms, the tax arrangements for contractors are changing so that they won’t get such a good deal if they can’t demonstrate their work is out of scope and employers will have to pay more for using and keeping what were previously non-payroll workers.
This will have a big effect on how people choose to work and who they choose to work for, not to mention how organisations plan and budget. An organisation’s policy towards contractors will affect how attractive they are to freelancers.
But on the other side we’ve already seen some risk averse companies adopt a blanket ban on freelancers just to be safe – meaning they are missing out on skilled professionals they need to deliver projects.
In Northern Ireland, as elsewhere, it’s likely the IR35 reforms will hit technology hardest, but the effects could be wide ranging across roles in construction, project management and finance.
We’ve heard anecdotal evidence of IT contractors leaving the big banks and starting to view early stage tech companies with less than 50 employees more favourably because they fall outside the scope of the legislation. When similar legislation was introduced in the public sector in 2017, hundreds of highly skilled contractors left roles to join organisations who were prepared, often leading to projects being scrapped.
Now the private sector is catching up, preparation is key and anyone who hasn’t done a review of what it means for their capacity should do so urgently. A Hays survey showed 68% of private sector firms expect cost increases when IR35 reforms come into effect, 56% expect to lose key talent and 46% think it will be harder to bring in non-permanent workers. A third of organisations surveyed were completely unaware of the reforms – a big concern given how tight the labour market is.
So, first you need to determine whether assignments are inside or outside of IR35. You need to have full visibility of all workers your organisation engages who are paid via agencies and consultancies as well as knowledge of how they are paid.
You will also need to have the expertise to determine the tax status of each assignment. When you know that you can then start communicating with freelance workers, renegotiating working arrangements, standardising onboarding procedures and deciding if any specialist skills need to be brought in house to get projects over the line.
If you expect to use a high volume of temporary workers in 2020, outsourcing your temporary worker provision through a managed services programme could be an option, as an expert would carry out accurate assessments for every temporary worker placed with you.
Whatever stage you are at, don’t ignore IR35. It’s coming and you need to understand it.