IR35 and the IT sector

As all contractors should be aware by now, the private sector IR35 reforms will be rolling out in April 2021. This was set in stone after MPs voted against amendments to the Finance Bill which would have seen further delays. The April 2021 date is, in itself, a delay as the off-payroll changes should have come into effect on 6th April this year. However, they were pushed back in March as the COVID-19 pandemic meant that the timing would have been disastrous for many of the UK’s self-employed.

One group that perhaps looks to be particularly affected is IT contractors. There is a high concentration of contractors in the IT sector, perhaps more so than any other. This is for a variety of reasons but for IT workers such as software developers, work tends to be project-based – meaning that it’s not always cost-effective for businesses to hire these as permanent employees.

Add to this, IT projects often require certain skillsets. This means that one IT worker may be the right person for one project but not another, so hiring contractors is a much more efficient way to access specialisms than setting up a large team of employees. All this means that IT contractors make up a large proportion of self-employed people in the UK – and so IR35 reforms will have a big effect on the sector.

Should IT contractors be thinking about IR35 yet?

If you’re an IT contractor, you are possibly already feeling the effects of IR35, even though it hasn’t happened yet. In the run-up to the April 2020 deadline, many large organisations such as HSBC and Tesco Bank have either stopped the use of contractors altogether, or blanket determined them as inside IR35 without fair individual assessments.

In many cases, these blanket bans and blanket determinations have not been reversed in light of the delay and so, as an IT contractor, you may have found your contract terminated, or been told you will be classified as inside IR35 once the reforms come regardless of contract wording or working practices.

If you’ve been told you’ll be inside IR35 from April 2021, you may have now put IR35 to the back of your mind until you have to decide whether to accept it or find a new client. If you haven’t been affected as yet, you may not have given it much thought at all. Either way, April 2021 isn’t that far away and preparation is always the best form of protection.

This is true, of course, for all contractors. However, it’s especially applicable for IT contractors as you are one of the few self-employed groups that has probably still had plenty of work throughout the COVID-19 crisis. Assuming you can work from home, businesses may well have been relying on you to help them with solutions to get their permanent employees working remotely so that they can keep going with business as usual themselves.

So, if you have contracts that will roll into next April, or are likely to be looking for them soon, IR35 really needs to be on your mind.

What can you do about IR35?

As an IT contractor, one thing you can do is educate your end clients to help prevent them going down the route of blanket determinations. For one thing, it’s a route HMRC themselves have actively condemned. They have issued guidance that states businesses need to be able to demonstrate reasonable care has been taken in making a determination and they specifically state that blanket decisions do not constitute reasonable care – and there’ll be penalties down the line, as seen with NHS Digital’s £3m bill, for those that don’t

Another point to raise with clients is that IR35 doesn’t have to be difficult. A review of your contract and working practices and a collaboration on any necessary changes should be all it takes to come to an agreement everyone is happy with – one that means you’re treated fairly and you client retains access to exceptional talent.

You can also directly help your end client by taking out IR35 insurance that protects everyone in the contractor supply chain and flexes to protect whoever carries the liability. Kingsbridge’s IR35 protect cover even includes IR35 status reviews to help make sure the right determination is reached without risk.

It’s not all doom and gloom

We know IR35 isn’t something IT contractors (or any contractors for that matter) want and that it’s going to cause problems. But it’s not all negative. With the extra time until April 2021, you have the opportunity to engage with your clients and help them make the right decisions. After all, they don’t want to lose some of the best talent in the sector – especially not when we’ve all seen how reliant we are on IT workers.

The team at Kingsbridge is ready and waiting for when you want to talk IR35 Protect, just call us on 01242 808740 or find more details here.