The Impact Of IR35: Two Months In…

2021-05-18 |  Clare Allan

If you include all of the planning, we’ve been apprehensively awaiting the arrival of IR35 for more than three years. During that time there has been endless speculation in the press and on social media about what it will or won’t mean – but now, nearly two months into the new regime, we thought we’d share some initial observations from a management consultancy point of view:

1. Varied client responses. We work with some of the biggest names in financial services, and while a small but significant number of our clients have instigated a ‘no PSC’ policy, the rest are happy for IR35 assessments to take place.

2. Pragmatic contractor responses. In most cases where clients have adopted a blanket response to IR35 and will no longer entertain PSCs, we’ve been able to negotiate a fixed-term or umbrella solution. The trials and tribulations of the past year mean that most contractors are just happy to be engaged and are behaving pragmatically. However, now that the impact of COVID is diminishing and we’re more used to home working, we’ve noticed an upturn in new outside-scope roles, which suggests contractors will have more choice going forwards.

3. Rise in the number of fixed-term contracts. Naturally, IR35 has led to a greater focus on contractor resource and an increase in fixed-term opportunities. Unfortunately, this can hugely limit the talent pool, because without the reward from the preferential tax arrangements that PSCs can afford, all the risk sits with the contractor.

4. Umbrella companies popping up all over. While at PEN we have strong relationships with several Umbrellas (with no affiliations though, as we remain independent), more and more are being set up, all offering something slightly different, with various incentives in place to win business. If you're a contractor it’s worth reading the t’s and c’s carefully to establish exactly what you’re getting for your monthly fee – that way there will be no surprises in your first pay packet.

5. Mass exodus. In one worrying tale, a recruiter told us how one of her clients, a media organisation, saw a mass exodus of day-rate programme contractors who weren’t prepared to stay on the inside-scope terms offered to them. This particular organisation had taken a blanket approach and wasn’t open to assessing all the roles to establish which were genuinely outside-scope and which weren’t. This is an interesting lesson in managing risk - yes, the company has successfully eradicated any possibility of reputational risk and tax liability for incorrect status determinations. But surely the risk to the complex and expensive systems implementation programme, with the loss of huge amounts of IP, is incalculable.

And it’s impacting everybody. Gary Lineker is the latest celebrity to have been the focus of HMRC’s investigations due to IR35 and may need to repay £5m in unpaid taxes, so it will be interesting to see how that plays out.

In summary, it’s slightly too soon to establish the long term impact of IR35 on UK financial services companies. But there are some interesting trends emerging.

What have you observed?

Get in touch if you’d like to discuss this further or for more information about our services, head over to our Resourcing Hub.