Changes to the IR35 rules were introduced to the public sector in April 2017, putting the burden of proof on the hiring organisation. They had to prove whether the contractor was inside or outside of IR35. The same rules will hit the private sector in April 2020.
There is a mixed view of how the changes affected the public sector. Some say it resulted in many contractors deciding to go permanent; some claim there were fewer public sector freelance jobs available, and there was evidence that contractors increased their day rate to cover the extra costs.
So, what predictions can we make? It’s time to ask the audience.
Will contractors stop contracting?
We surveyed over 800 IT permanent and contract staff to get their views on a variety of subjects. The subsequent report is titled ‘IT Talent Acquisition; the candidate’s view’.
One question we asked was “Will you stop contracting after the IR35 reforms in April 2020?”. Surprisingly, the majority said they would continue contracting (53%). Only 8% said they would stop.
This supports the view that becoming a contractor is a lifestyle choice rather than a tax avoidance scheme.
IT contractors outside of IR35 receive a relatively modest tax advantage compared to their employed counterparts. Arguably contractors sacrifice employment rights and security, paid holidays and sick leave and are required to tackle their own insurances, professional fees, provide their own pension… all with no guarantee of income.
The government described the new IR35 legislation as designed for fairness – levelling the playing field for both public and private sector work. However, I believe it complicates self-employed work for IT contractors and places the burden of proving IR35 compliance on the employer.
So, will the new rules affect how organisations hire contractors?
Will companies stop hiring contractors?
These new rules mean that clients (not contractors themselves) will be responsible for determining the employment status of contractors. We asked over 250* hiring executives how the IR35 reforms would affect their view of contractors. Here’s the result…
• We will continue hiring contractors – 22%
• We will stop hiring contractors – 41%
• We will limit hiring contractors – 11%
• We have not decided – 26%
As you can see, 52% of hiring executives said they would either stop or limit the hiring of IT contractors after the reforms. This is clearly an intention rather than a reality, and executives may change their mind post-April 2020. But if it actually happens, what will be the impact on their company and how will it affect ‘UK Plc’?
How might it impact the UK tech landscape?
IT contractors frequently move from one project to another — whether that’s for a large organisation or a start-up. The skills that come from working across different sectors and discovering best practice are the sort of skills that will make the UK a leader.
Contractors are also very aware of the technologies that will be big in the future and are generally first to obtain those skills. They must be ahead of the game or risk not being employed.
They also have the advantage of being a specialist and improve their skills by repeating a deployment several times across many different companies. Contractors tend to be fast. UK tech start-ups benefit from a pool of freelance tech talent that is fast, has leading-edge skills with a full breadth of ‘real world’ experience.
UK start-up companies may also decide the complexity and burden of proving the contractor is outside of IR35 is too much of an administrative burden.
Start-ups tend to begin small and lean, but operating in a fast-paced tech environment means they can quickly grow to the 50 staff where the IR35 reforms kick-in. Checking, proving and recording that a contractor meets the new IR35 criteria may be a process they cannot adopt because they don’t have the resources (plus the fear that if they get it wrong, they may be fined by HMRC).
Contracting in IT and computing should be encouraged, not discouraged by a complex, burdensome and old-fashioned tax system. IR35 was first introduced in 1999, and too much has changed in the world of work for us to expect it to now be fit for purpose.
What’s your view? Please comment below, or download our full report on the candidate’s view of IT recruitment.
* Survey of hiring executives conducted in October 2019, n = 255
This report includes figures on hot topics such as how social media, job boards and mobile phone Apps are rated by IT candidates. It also examines the increasing importance of work:life balance for IT staff, and the approaches that work best to attract permanent or contract job seekers. Our 8-page document includes 12 charts and tables plus valuable insight covering subjects such as…
• Where do candidates search for IT jobs?
Download the free report now and gain a competitive advantage in the hunt for IT talent.