IR35 REFORMS AND A WAKEUP CALL FOR RECRUITERS
I’ve been talking to quite a few recruiters in the run up to the April 2021 IR35 reforms. The overriding sense I get is that recruiters feel as helpless as contractors do, to influence the whim of their clients in terms of how they address the reforms and the status determination of contractors. I’m hearing with concerning frequency, of recruiters losing their resources as they walk in preference to being forced inside IR35. Frankly, who can blame them? I can’t.
Surely then, recruiters that do manage to influence their clients to embrace outside IR35, will steal a march on their competition? There’s a period of perhaps six to twelve months in which some recruiters will gain and others will lose. And those gains and losses are potentially long-term, an inescapable shake-up of perhaps the next three to five years of the recruitment industry and the plight of the players within it.
Listed companies have a duty to shareholders to legally optimise their tax models. Contractor limited companies should be afforded that same opportunity. Instead, tens of thousands of contractors are being unnecessarily forced down PAYE routes by hasty client decisions, possibly fuelled by less-than-impartial advice. A potential take-home pay reduction of 15-25%. Some clients are sailing close to the wind of HMRC’s intolerance of blanket policies. HR and compliance leaders and legal counsels have taken the path of least resistance and risk in response. Or at least that’s what they’ve convinced themselves and their CEOs they’ve done. They’re probably wrong.
Clients appear to harbour a notion there’s no impact for them of forcing contractors inside IR35. The same rates for the same services. But they’re actually paying possibly 15-25% less, even though it’s costing them the same. Their money isn’t working as hard. And when paying for talent and effort, one often gets what one pays for. Put another way, if the money isn't working hard...
The main aim of these client decisions is avoidance of HMRC dispute, back tax, NI and penalties. But the flipside is being ignored. The reduced productivity from unfairly treated contractors. The inevitable talent drain as disenfranchised contractors seek to recover their revenue position elsewhere. The client and recruiter hassle of SDS disputes, especially where clients take an existing outside IR35 engagement and force it inside. The menace of employee rights claims from inside IR35 contractors. HMRC tribunals after all.
The potential wider economic impacts of clients simply throwing in the towel on outside IR35 are also numerous. Disruption and deceleration of change and transformation programs will reduce resource demand and compromise the recruitment market. At the same time it will dent the ability of UK organisations and therefore industry as a whole to recover from the pandemic impact. Contractor talent will be lost to companies abroad. UK companies may be forced to seek offshore resourcing solutions, which whilst unlikely to be optimal solutions or strategies for many programs, need be explored because those same companies have decimated the optimal route. Again this will adversely impact the UK economy.
This is a wakeup call for the recruitment industry and for UK industry as a whole. We all need to work together to optimally comply with the IR35 reforms, not to blindly throw in the towel and ignore the fact that IR35 is in fact an enabler, not a prohibitor. It has been for more than two decades. It’s simply a set of rules to abide by. So abide by them to your greatest advantage, not to your greatest detriment.
The recruitment industry, and contractors themselves, may be able to help many clients to shift their thinking. Help them to realise that blanket bans and reluctance to embrace outside IR35 are self-destructive policies, with a tunnel-vision focus on one perceived risk they partially understand. Clients, recruiters and contractors need to seek the right advice and adopt optimal solutions to manage and eliminate that risk.
Talk to 34square. There are more client-beneficial and all-round advantageous solutions available than walking away from outside IR35 and opening a Pandora’s Box of alternate risk and compromise. The main obstacle is a lack of true understanding of the whole picture; a lack of awareness that solid solutions even exist. It’s time for UK recruiters and UK industry to pick up the towel and to shift their thinking. To contractors and recruiters out there that believe there’s nothing you can do, here’s a leaf from the book of perhaps the greatest basketball player of all time, Michael Jordan; ‘I can accept failure, but I can’t accept not trying’. And if at first you don’t succeed…