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IR35 - What's Changed?

Posted by Petra Brown

For years, the stigma of IR35 has been a concern for working Contractors across the board in the Public Sector, however, up until now the ‘impossibility’ of HMRC policing such an issue has allowed the majority of contractors to operate outside (whether they legitimately are or not!).

So what has changed?
As of 6th April this year, the liability on IR35 status and correct tax reductions have shifted from the contractor’s Personal Service Company (PSC) to the end client and agency payrolling the contractor.

Before 6 April 2021, if your worker provides services to a client through you in the:

  • Public sector, the client must decide your employment status
  • Private sector, you must decide your worker’s status

From 6 April 2021, all public sector clients and medium or large-sized private sector clients will be responsible for deciding your worker’s employment status. This includes some charities and third sector organisations.

If the off-payroll working rules apply, your fees will be subject to Income Tax and National Insurance contributions.

What does this mean and what have been the ramifications thus far?
Well, the most apparent change is everyone involved has become more risk-averse, in the fear of being liable for up to 7 years of back-dated tax payments to HMRC. The end organisations, who are legally responsible for deeming whether an assignment falls inside or out, are largely taking the risk-free approach and are stating that everyone is ‘inside’. This has, in turn, meant that each assignment has received less interest by true professional interim contractors (who are used to consultancy-like assignments), and has limited the talent pool. For those that have accepted the changes, it has meant that they have to operate through an additional intermediary, such as an Umbrella company – where the contractor is forced to pay full tax and National Insurance (at 13.8%) at the source.

Conversely, we have seen many contractors who have put themselves through the HMRC tool, deemed themselves as out, and have the prerogative to challenge the clients and ask at least for the due diligence that has led to their ‘inside’ decision. We have also seen a number of Housing and Charitable organisations who have managed to stipulate, quite confidently, that they are outside, and have been able to offer ‘outside’ IR35 assignments.

The risk that professional interims take differs to that of a permanent member of staff. When professional interim finish an assignment there is no guarantee that they will secure the next assignment anytime soon. A contractor could quite easily see themselves out of work 2-3 months at any time whilst they look for another opportunity. A lot of interims also have their own specialist remits such as a particular system implementation, culture transformation and reviewing financial processes and procedures to name a few.

Professional interims are important for all companies going through change. Change can be difficult for any organisation that is going through the transition as it means going into something new without reassurance that it is going to work for the better. A lot of projects/assignments focus around someone who has gone through this change period and perform the same project for different organisations.

If every permanent member of staff stayed at their company for a year on average just to move on to another company this would cause a huge disruption in the market. One of the important factors for someone to consider permanent over interim is having that security and stability. Every person is different and in the same respect, everyone’s motivators are different. With the IR35 changes, should contractors really have to take a hit in the public sector whilst the private sector remains unaffected?

For more information about this article, or to speak to Petra about your interim finance recruiting needs in London or Nationwide, contact her on 020 7269 6350 or petra.brown@pro-finance.co.uk.

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