In-Out – shake it all about… The IR35 chickens are coming home to roost!

It is no shock that the general consensus between public sector business managers is teetering on the verge of exasperation concerning the latest IR35 malarkey.

Coping with anxious contractors who are facing the realities of their predicament (paying the same amount of tax as you and I on their income!) tied with many staffing service providers who have been at best incompetent and at worst complicit with a culture of tax……er…’avosion’. It would not be surprising if many business managers are at their wits end.

The changes in the IR35 regulations due to go live in April have put an end with the smoke and mirrors. However, many have indulged in (insofar as the status of) an individual engagement, or the sort of service your provider of contingent labour supplies.

Finally, end-user employers are being held accountable and are being asked to ‘take a view’ and frankly call a spade a spade.  If you direct them, you need them to attend at particular times…well you know the rest…

Have some sympathy for the confused contractor – We blame the high street accountant!

Our proactive campaign to ensure we pre-emptively sailed our ship into the calm waters of compliance did produce some interesting outcomes. 

We interpreted a deliberate obtuseness from some contractors who we know to be fair-minded intelligent individuals. This was due to some being unable to give sensible viewpoints concerning simple concepts of employment statuses. The reality was that when probed, we came to learn that these problems were created not by them but by the above-the-chip-shop high street accountant.

The amount of times we have been faced with a contractor who had put their faith in a so called professional who clearly knows nothing about the issues, or is taking an erroneous position to entice their customer, has been very disturbing.

One of the real risks to Public Sector bodies is the loss of unique skills working on critical projects. We expect this to be prevalent where the agencies responsible for managing the payroll have not planned, nor communicated the change.

It will be interesting to see how this plays out over the first quarter of this change.

There is a future – and its compliance

Firstly, don’t be scared to judge someone as outside of IR35 if the test states as much –it is a test for a reason.

That said, the application of PAYE for contractors who are inside the scope of IR35 continues and the test of a good agency supplier is one that has planned for this and has communicated effectively to both their clients and workers. We have seen a 70% transfer rate from the use of personal service companies to PAYE in the space of the last 12 months. This has been a managed, progressive, and informed decision made by workers whose eyes have been slowly opened over that period.

Where there was previously the option to utilise tax minimisation strategies via their own Ltd Company, particularly in the area of employer pensions, there are options for agencies to help their workers achieve similar outcomes. We expect to see the continued innovation and development of these schemes.

The steady conversion to a new way of engaging supplier services will also be key.  Innovation in managed recruitment services and more outcome-based solutions will create opportunities, specifically within niche markets, and agencies ready to step up to the task of professional outsourcing of full business processes and the transfer of the risk that this entails, will be successful   

HMRC are likely to look critically at any set ups which are only an outsource on paper.  More generalist Managed Vendors will create a tier of experienced partner organisations able to commit to these outcomes. Tighter compliance control, better payroll services, in-house training and specific market knowledge will all play a role in mitigating the risks facing the Public Sector of these changes. That said, like all predictions on this subject, it is likely to increase the cost of agency worker engagement.

The winner in all of this will be the Central Government coffers – brimming with the increase in tax and NI revenue that is until the departments picking up the bill for these costs require increased budgets to ensure they can afford the increased costs of their core contracting staff. 

Watch this space!