IR35 – Companies Who Get It Wrong, Will Lose Out
Read our guest blog from Glenn at GGJ Global Consulting Limited where he shares his option on IR35 and who will lose out if this is done wrong. Read more below:
Over the last few years, private UK companies and the government have been struggling when it comes to getting IR35 right, you could argue they have been getting it wrong. As a Freelance People (HR) Consultant and People Director, I am conscious that this article may be slightly one-sided; however, please be the judge of this yourself as I try to be unbiased. With the impending deadline looming of April 6th 2021, this article is an attempt to highlight three key areas where getting it wrong, will cause your company issues.
Firstly, some companies have already taken a strict hard line of putting all their contractors/consultants inside of IR35 rather than spending the time to assess them correctly. Secondly, other companies have decided to use Top 4 Firms for advice/guidance in evaluating their current contractors, while being a little sceptical, could have an alleged by-product which is favourable to their firm, we will touch on this later. Lastly, other companies have not thought about IR35 and have not even looked at the legislation in the hope that the government will change their mind. This head-in-the-sand approach is not going to work as the bill has passed and has been committed to.
For the rest of this article, we will use the term contractor instead of consultant.
The three areas that we will look at are:
- Getting IR35 correct.
- Contractor loss.
- Failure to attract contractors in the future.
Getting IR35 Correct:
Every company has to get this right as it is clear that the government are looking to ensure that this legislation is enacted. Getting it wrong will lead to some substantial financial fines, scrutiny by HMRC and potential reputational damage. Furthermore, providing the correct assessment of contractors is equally essential. Coming back to my earlier scepticism, the by-product of getting this wrong will no doubt cost your company in more ways than one. For example, instead of becoming a talent magnet to contractors who have specialist experience, knowledge and skills which you do not have in your company, you could see a talent drain resulting in projects or specialist work not being complete due to being unable to attract and retain the contractors required. The option to avoid this happening is to bring in the Top 4 Firms or Consultancy Companies to carry out this audit process, at a cost to your business.
The majority of contractors will not entertain working within IR35 while being paid the same rate as they will be taxed and charged national insurance, just like a regular employee, whilst not getting the benefits they do. Also, there is an impact on their own company as the sales revenue cannot be recorded, and any business-related costs would only be able to access legitimate business revenue. This will no doubt have an impact on their credit rating and business health. Of course, the other option is to offer the contractor a fixed-term or permanent contract, which potentially would mean them having to either put their own business on hold or close it down. All in all, it’s a loss to a contractor unless a fixed/permanent contract is what they aspirationally want to do.
Getting the right IR35 specialist is a positive thing for your business and ensures you get the assessment spot-on; this is a benefit for both your company and for the contractors you work with. By having a robust and transparent approach it will not only mean that you will be leading the way through IR35 but also sign-posts to contractors that it is not a one-size-fits-all approach designed to discourage them from working with you. Furthermore, it should protect your company from employment tribunals and informal challenges that will invariably take up costs, effort and time.
One noticeable result of the last 18-months is how many contractors have already a) given their notice to their clients b) have not taken offered contract extensions c) have taken decisions to move away from contracting and d) have moved back to fixed-term or permanent contracts.
Over two weeks, I wanted to understand via my LinkedIn network the following question:
How has IR35 affected you as a freelance consultant and have companies lost your experience, knowledge and skills because of their approach?
Although this was a sample of just 22 people, over 64% said “Greatly,” followed by 23% who said “Somewhat”, and 14% who selected “Not at all”. Therefore, 87% of contractors are not happy with how they have been treated by companies; clearly, this is not a great message to see coming through.
Failure to Attract Contractors in the Future:
As you can see from the previous sections, contractors are reacting to how IR35 is being implemented. Accessing specialist resource is key to helping companies through instances where the experience, knowledge and skills do not exist internally to them. There are some great companies that are doing all they can to get it right; however, they are in the minority. Therefore, the majority of companies will fail to attract contractors in the future unless some fundamental changes are implemented sooner rather than later.
The IR35 approach and legislation are changing the landscape for companies and contractors across the UK. However, the way it is being implemented is having a significant impact on a) companies’ ability to correctly assess the IR35 status b) applying a blanket assessment status across their whole contractor base, thereby closing the door to many and c) companies failing to attract new contractors which are needed both now and in the future. On a positive note, there are some companies who are doing this right, but they are in the minority. Which Company will you be?
Glenn is a freelance People (HR) Consultant/People Director and has worked with Tesco, AXA XL, Bank of America, HSBC, Ecolab and Imperial Brands in multi-discipline strategic and operational roles across the world for the last 9-years. Before this, Glenn was employed Eversheds LLP, Accenture, Koorb (NZ) and EON as well as numerous other companies and organisations. He is working his way to his DBA which he started in March 2020, becoming a future CEO and evolving his HR consultancy business to ensure that he continually adds value to his clients, now and in the future. Glenn is passionate about all things HR/People especially coaching, emotional intelligence and company evolution. His book ‘Human Resources Changes The World’ aims to disrupt the function of HR and change the traditional approach to who becomes a CEO.
GGJ Global Consulting Limited