Proposed changes in IR35 legislation come against a background of significant change in the world of work. Is this the catalyst to realise many of the eyebrow raising predictions we have seen around the move to a gig-economy supported by technology and changes in our expectations at work?
People Management highlight that within 12 years, half of the workforce could be freelance, while Deloitte have suggested that within a decade a large business could exist with only the CEO working full time. With a move towards flexible working often paid on outputs, enabled by technology from the likes of SAP Fieldglass and Talon, there is real substance in the thinking that IR35 could provide a burning platform to change the way we work.
IR35 looks to tackle perceived disguised employment where individuals working through their own limited companies (PSCs) are paying incorrect income tax and national insurance contributions. Reforms in the legislation shift the liability for determining whether to apply it from the individual contractor to the end client. HMRC believe this will recover lost revenue to the tune of £1.2 billion per year. Having already implemented this change in the public sector, claiming they have recouped an additional £410 million, HMRC have set their sights on the private sector in 2019.
IR35 seeks to determine whether an employment relationship exists, examining working practices around control, substitution and financial risk. Does the client control what the contractor is doing? Is the contractor able to send others to perform the agreed work? Will the contractor take a significant financial hit should they not perform the agreed work adequately?
Yes, all of these questions throw up many challenges and grey-areas. However, the underlying assumption is that if individuals are able to find a legitimate way around IR35, they will. Furthermore, engaging with a client under a contract for services which outlines exactly what will be done and how payment will be made, enables the contractor to retain control. In many cases they will be able to deliver the work how, when, and with who they want as long as they deliver the specified services within the agreed timeframe.
To emphasise this, we saw a 23% increase in demand for statement of work (SoW) in the public sector following the reform – that’s 23% more contractors wanting to be paid on deliverables and take on more financial risk.
Keeping the IR35 background in mind, when considering wider social concepts about the workplace, we can start to see how aligning factors are pointing towards wide scale change. We have a workforce increasingly dominated by millennials who want to work on new projects, they want development opportunities, and they want to be able to take ownership. We have a consumer market expecting flexible, visible and on-demand services. And we have ever developing technology supporting the allocation and reporting of work.
IR35 is the catalyst that will accelerate the changing shape of the workforce, taking us to a place where organisations will be buying “skills” and not “time”. And those organisations doing this best will succeed in attracting and getting the most out of the best talent.
Are you prepared for how IR35 may affect your business? Speak to Reed Consultancy+ to help you understand the change, outline approaches for managing the change, and create a roadmap of how you engage contractors and procure services.