Contracting in 2020
As we move into the new year, we know that the contracting market is facing a significant upheaval in 2020 with the changes to the IR35 legislation which come into effect from April. The legislation is designed to determine if contractors are genuinely self-employed or acting more like an employee and ensure that they are paying the appropriate tax and national insurance based on the way they are working. There is, unsurprisingly, uncertainty about how the changes will land and what the ‘new normal’ of contracting will look like once the dust settles.
What are the IR35 changes?
The change itself is relatively simple – the responsibility for determining the IR35 status of contractors working through personal services companies (PSCs) for tax purposes is moving from the contractor to the end client. It sounds simple, but it is likely to have far reaching consequences.
What does it mean for end clients?
Many of the businesses who use large numbers contractors are facing a significant increase in administration costs as they will need to carry out an individual assessment for every contracting role they recruit for, to assess whether it is within or outside of IR35.
The alternatives are to stop using contractors altogether, to only work with contractors who are employed via an umbrella company where IR35 doesn’t apply or to employ people directly through fixed-term contracts.
What does this mean for the market?
The expectation in the market is that many more roles will be deemed as inside IR35 than they are currently, as it is anticipated that end clients will see this as the lower risk outcome so will err on the side of caution when making their assessments.
As you would expect, contractors are having to make decisions about whether they wish to continue working in the same way with a reduced number of roles available, if they are happy to work in roles that are inside IR35 or if they are going to switch to an umbrella arrangement as the administrative burden of running a PSC starts to outweigh the benefits.
How will the market develop over the rest of the year?
The reality is that we don’t yet know what the split of roles will look like after the changes come into effect, and many businesses have yet to make decisions about the types of contractor they will engage with going forward.
It’s important to remember that decisions made now may not mean they won’t change in the future. If businesses find they are no longer able to attract the quality, experienced and skilled contractors they rely on, they may need to reassess how they operate going forward to make sure they continue to attract the right talent.
Umbrella companies are likely to increase in prominence, providing the reassurance to both contractor and end client that all legal obligations are being met compliantly and removing the administrative burdens from both sides. For more specialist contractors, the market is likely to become a more flexible place to work, with more emphasis on outcomes-based contracts where the focus in on output rather than process. Increased flexibility of location and time would move the market much more towards a freelance model.
As we near the end of the year, we will start to see the new status quo emerging. The fundamental requirement for a flexible workforce, however, remains and the market is expected to continue to go from strength to strength as the changes embed and all those impacted adjust to the new landscape.