The budget and the new era of IR35: what they mean for the recruitment industry
The Autumn Budget is always greeted with bated breath. In 2018, contractors may have been holding theirs more than most. Whilst the Chancellor announced increases for lifetime pensions, tax thresholds and some relief schemes, one feature took centre stage: IR35.
This will change recruitment in a fairly significant way. The rules have morphed drastically in the 18 years (and counting) since IR35 was created. But we want to put our clients and contractors at ease regarding what’s to come.
Here, we examine the state of IR35, along with the Autumn Budget, so you’re aware of how the industry might respond.
First: the Budget at large
Philip Hammond’s announcements made a few other big statements that will impact recruitment as we move into the next decade. Here’s a list, with a short breakdown:
- By 2023, public infrastructure investment will be at its highest for 40 years. Roads, railways, bridges and communal buildings are going to require more engineers and specialist contractors. As a result, we’ll see more opportunities start to arise around the UK for public sector work.
- AI technology has been given a £1.6bn budget, along with further advances in science and computer engineering. The more candidates display their acumen in autonomous systems, big data and creative programming skills, the better they’ll appear to global companies who want to innovate on British soil.
- The Brexit preparation fund has been increased from £1.5bn to £2bn. This will partly give SMEs and medium-sized companies access to the training they need for internal adjustments should a ‘no deal’ occur.
Each of these points is relevant to recruitment, of course. Yet IR35 takes the lion’s share of attention. Why? Let’s take a look…
What’s the newest development?
As you’ll no doubt be aware, IR35 decides who is classed as an independent worker for the purpose of submitting tax and National Insurance.
Contractors are assessed on their level of autonomy. HMRC wants to know whether they are ‘disguised employees’ (and therefore due to pay more tax and gain workers’ rights) or functioning on their own as a personal service company (PSC). Until April 2017, contractors had to prove IR35 compliance themselves. Then it changed for the public sector, where the onus was put back on the client – or indeed, those in charge of paying the contractor.
Now, from April 2020, the same will apply to the private sector as well. Recruitment agencies or employers must decide whether their contractors are in or out of IR35.
How the industry will respond
Naturally, recruiters across the UK have to be very careful when adapting to IR35. The same goes for employers, too, who have direct control or are affected by the issue. Classifying contractors properly – and submitting their tax and NI – can’t be left to chance.
In the short term, we’ll see a spike in training and protections around what IR35 means on a case-by-case basis. The likelihood is that the year-and-a-half grace period will motivate people to act now, rather than later. But to do so, employers are going to be more discerning with the recruiters they use. Those with a partner that has a wealth of knowledge around IR35 policy will be more able to successfully manage it. They’ll be able to unpick ‘reasonable care’, HMRC’s hazy definition of what constitutes working for yourself or a corporation payroll in the 2020s.
However, outside-IR35 contractors will start to grow in number. They’ll be seeking to avoid the higher tax that stems from being classed on the employee payroll. Some may stipulate a PSC guarantee on their contract before they start work. Employers should respond, in that case, by tracking their activity as closely as possible, whilst recruiters should conduct audits on who they already have on the books. Similarly, candidates who fall within IR35 may ask for more pay to cover the money lost through umbrella tax payments.
We also predict that record-keeping will become stricter in order to answer any HMRC queries. In addition, small companies will probably benefit from an influx of candidates because they have longer to rein their processes in. Until 2021 or 2022, they may grow faster than they’d planned due to the extra contractors knocking on their door.
The industry is different now, perhaps, but common sense prevails. This is more than active at DATS Recruitment. We are educating workers on what they can achieve, as well as the companies that are willing to be flexible and reactive to change.
This article was written in DATS’ partnership with Brookson One, a specialist contractor accountant.
We are partnering with Brookson Legal Services, the only UK legal business specialising in IR35, and which has 18 years’ experience of assessing roles against the scope of IR35, to deliver a robust solution. This will ensure reasonable care is taken in identifying which roles are captured, and which will fall outside. This will work to protect, and ensure compliance throughout your supply chain.
If you’re concerned about how you or your business may be affected by any of the items discussed above, please don’t hesitate to get in touch for support.