‘Worried’ contractors push to get practical about IR35 reform

Worried, clued-up, determined to continue contracting but waiting to hear much more practical detail from their line manager and recruitment agency about the way forward.

Such is the picture of the typical Personal Service Company contractor, according to the most comprehensive survey yet of IR35 reform, incoming to the private sector from April 2020.

Commissioned by Harvey Nash, the survey findings were described yesterday by a status specialist as ‘unsurprising,’ mainly because a hefty 91% believe the reforms will be harmful.  

'Once or twice'

But on closer inspection, the survey reveals PSCs’ focus has moved on from getting to grips with the reform (more than 60% are fully clued-up; 30% partially); to what happens next.

Currently though, line-managers and agents are the most likely parties that PSCs have only spoken to “once or twice” about IR35 reform, despite each party being vital to administer it.

In fact, nearly a third of contractors have only had such an occasional chat with the recruiter, and just one fifth spoke to the manager. That suggests the next steps for many PSCs are opaque.

'Unable to fully quantify'

So it is falling to ‘external experts’ – which the survey also shows are the most trusted source (just ahead of the press) to outline contracting post-April, which the bulk of PSCs said is their aim.

Working at a major bank, one PSC summed up the current position many contractors are in: “We are still awaiting details on how a ‘Ltd’ day rate contract will be converted to a PAYE contract.

“And until we know [those] details, we are unable to fully quantify the financial impact.”

Bowers Partnership, a niche recruiter confirms: “All the medium-sized clients we have that don't have RPOs are taking a wait-and-see approach, which is the correct course of action.”

'Far more complicated'

And taking the time to get it right rather than rush and get it wrong is indeed best, hints Harvey Nash, despite it finding 60% of PSCs to currently be ‘stressed, anxious or worried.’

“People think they can just move their PSCs to Statement of Work engagements, but it is far more complicated than that,” warns Colin Morley, the group’s professional services director.

He also told ContractorUK: “We have witnessed a lot of sham SoW engagements from both recruiters and consultancies, that are really just a façade to mask the resource.”

'Real fear of retrospection'

But the agency’s survey shows that more than one-fifth of engagers aren’t even getting that far, as 22% say their approach to the off-payroll rules “may” be to stop using PSCs altogether.

“A lot of clients are trying to move contractors to perm roles, but there is still the very real fear of retrospective tax claims,” Mr Morley said.

“Some of the reactionary decisions by financial services companies to make everyone PAYE will increase their costs by 34%.

“That is significantly going to impact their ability to deliver projects and programmes as it might not be commercially viable to do so. It will also make them uncompetitive in the marketplace.”

'A rate you're comfortable with'

Costs are pointing upwards for contractors too, explaining the 17% of PSCs who told the survey they will push for a rate increase to offset the potential impact of the IR35 changes.

These concerns about the ‘bottom line’ for contractors were live on LinkedIn yesterday when Lucy Smith, managing director of Clarity Umbrella, addressed PSCs in a post:

“You may have been told that your assignment is now inside IR35, or that you are required to use an umbrella company.

“If this is the case then you need to make sure that you are looking to achieve the right contract rate for your assignment -- one that you are comfortable with.

“Working via an umbrella company you need to be aware of the deductions that are taken from the monies received by the umbrella before your taxable salary is calculated – i.e. the value used to calculate your Employee NI and PAYE tax.”

'Attractive and skilled'

Similarly, working direct for the engager -- as an internal PAYE employee -- has multiple considerations too. The contractor at the leading bank reflected:  

“There are many other factors to consider such as paid holiday entitlement and pension contributions.

“[But for me], a lot will also depend on the industry-wide impact. If there are companies that are still offering outside IR35 contracts, then they will be attractive and skilled [contract] resource will move [to those].”

'Here to stay'

At Harvey Nash, Mr Morley prefers it to be a case of ‘when’ not ‘if’ such outside-IR35 contracts become available.

“In spite of IR35 [changing], contingent workers are here to stay, [it’s] just [that]…we will be engaging with them in different ways,” he predicts.

“Once organisations understand the tax risk, they will weigh that up against the increased cost of delivery and then look at putting a robust determination process in place, so they can look at resources working legitimately outside of IR35.”

According to its survey, the Harvey Nash director is correct to say ‘once’ organisations understand.

Forty-per cent wrongly believe it is the PSC who will be deciding IR35 status from April 2020; 56 per cent believe their organisation is unprepared and 87% say HMRC has not done enough to ensure the change to the new framework will be smooth.

'IR35 changes will be cancelled'

Separately, a survey by another staffing company Morson Group, indicates that these represent just some of the worrying perceptions about IR35 reform.

“Many employers...wrongly believe that the forthcoming changes will be cancelled or delayed due to the potential changes in government, cancellation of the Budget and Brexit concerns,” the group said.

“Yet the IR35 changes will most definitely roll-out, regardless of which political party will be in power come December.”

'Contractors must sit up'

An advisory on IR35, Bauer & Cottrell warned: “Whatever happens…contractors must not just sit there and wait to see what happens to them as a result of these new rules.

“They must sit up, play their part and take action – once their working options have actually been relayed to them of course.”

More than any other contractual party, then, it is end-users who must act first (as agencies and contractors cannot take steps without knowing the engager’s stance).

'Damaging'

But according to Qdos, a status specialist which regards the Harvey Nash findings as unsurprising, clients must not just act – they must act diligently too.

“Contrary to damaging speculation and misinformation, IR35 reform can be managed.

“Through preparation and by equipping themselves with the skills and expertise needed to make accurate IR35 assessments, private sector businesses will be able to safely engage contractors outside the scope of the legislation,” it says.

'Uncertainty, confusion, fear'

For now though, acknowledges Qdos CEO Seb Maley, being safe and secure is far from the pervading feeling.

“As we can tell from the [Harvey Nash] research, uncertainty, confusion and fear continues to impact contractors and the businesses that engage these workers,” he said.

“Contractors worry they will be mistaken for disguised employees and unfairly placed inside IR35 by clients that prioritise protecting their liability over making accurate IR35 determinations - whether that means these individuals are blanket placed inside IR35 by a client or left with no choice but to go PAYE or leave.

“Meanwhile, medium and large private sector firms are wondering how to make well-informed and compliant IR35 decisions that protect the liability they might carry and allow them to continue attracting these vital workers.”