It’s been a couple of weeks now since the new IR35 landed, a reform that seemed to cause more chaos than the first lockdown. The changes, which were due to come into force in April 2020, were delayed due to the coronavirus pandemic until April 2021. You might think that this extension would have allowed companies to be better prepared. But it just gave more time to generate a frenzy of last-minute panic.
So, as the dust begins to settle, and employers and contractors get used to the new way of doing things, how have the controversial IR35 reforms really impacted people?
IPSE (association of Independent Professionals and the Self Employed) recently carried out research on the impact of the IR35 reforms on their members, providing some of the earliest indications of how the changes have been met in the labour market. And it seems that many employers (“end-users”) remain confused about the best course of action.
Contractors reported that nearly a quarter of their clients were planning to blanket assess all their contractors as “inside IR35”. This means that contractors become employees, and employers must manage NI and tax, as well as provide employee benefits. This completely bypasses the advantages to employers of using contractors in the first place, locking both employer and employee into an inflexible working situation that contracting is designed to prevent.
Even worse than this, some companies are truly cutting their nose off to spite their face, with 8% of contractors reporting that their clients were going to cease using contractors altogether. Bit drastic, no?
Not using contractors due to regulatory changes is a huge shame, to put it mildly.
We at JMK know better than anyone… the benefits provided by contractors to both companies and the economy are huge, especially in the current climate.
This report from IPSE only shows that despite all the build up, companies were simply ill-prepared for the IR35 reforms, with many making knee-jerk reactions in a blind attempt to stay compliant.
HMRC has been criticised in its management of the IR35 reforms which have been described as complex. Their CEST tool (check Employee Status for Tax) is meant to make the process simpler, but has roused significant comment, most of which negative.
While it’s touted as a simple DIY solution, its “one size fits all approach” doesn’t meet all situations and fails to address Mutuality of Obligation. These, among other criticisms, could raise a question mark over whether CEST is enough to constitute the “reasonable care” necessary to carry out due diligence.
This is just one reason why many employers are making sweeping choices to avoid having to deal with IR35. But IR35 needn’t be a headache. And with the right support, companies can continue to enjoy the benefits of contractors, with none of the IR35 difficulties.
The coronavirus pandemic has changed the labour market beyond all recognition. The major shift in the way of working has also changed the skills which are now in highest demand. Companies really cannot afford to eradicate the use of contractors altogether, who plug essential skills shortages and provide fast and reliable access to labour.
Likewise, companies should also avoid herding contractors into needless employee contracts, simply to avoid repercussions.
One of the promising statistics from the IPSE research is that over one-fifth (21%) of end clients said that they would only engage contractors through umbrella companies, a solution which removes tax and NI insurance responsibility from companies who are using contractors.
In a fluctuating economy, adaptivity is crucial.
Using contractors compliantly gives savvy employers an advantage, as they can respond quickly to demands in their skill bank and have the ability to rise to every challenge set by customers, clients and the world at large.
Contracting is a 21st century solution to an unstable environment, now is not the time to remove it from your armoury.
We provide compliant employment and payroll services with advice on the right option for you.
Our exclusive comparator tool can help you choose the best payroll option for your agency and your contractors. It takes less than 10 minutes!
Our PSC Flex Service is designed for IR35-caught contractors with their own PSC who want to continue to work on contracts of their choice. PSC Flex allows contractors to process outside IR35 HMRC payments through their own company, while we take care of any PAYE payroll which is deemed inside IR35.
Remember – you can start your contractors transition now, and they will retain limited company status right up until the deadline. It’s free!
Talk to us to get the process started and relax knowing that you and your contractors are completely prepared for the deadline in April.
Stay safe and stay compliant!
The Team At JMK
Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions.
We have evolved to provide a range of expert services; such as Professional Employer Organisation (PEO), or Back Office Support (BOS) or Funding, becoming a leading provider to the contracting industry.
We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.
With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.