IR35: What does the delay mean for the tech industry?

It’s been just over a month since the UK Government announced a postponement to the impending IR35 legislation that was set to hit the private sector in April 2020.The legislation has long sparked debate as to whether this is the right approach or a big mistake. In fact, just recently the House of Lords produced a damning report claiming the legislation was ‘riddled with problems, unfairnesses and unintended consequences’.Before diving into that can of worms though, it’s worth first acknowledging the approach the Government took in delaying this move, something that is largely seen as a positive by all industries, but particularly tech.
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It comes at a time when the tech industry is currently playing a vital role in the crisis we are all facing. From keeping people connected to friends and family, to building and supporting the infrastructure that makes working from home possible through to the hugely important manufacturing of ventilators.So, with everything delayed by at least a year, it’s worth taking another look at just exactly what IR35 is, what it’s potential impact could be and the impact the delay could have.
IR35 – a breakdown
The IR35 legislation essentially aims to determine whether workers are contractors or employees of a business. It was first introduced in 2000 by then chancellor, Gordon Brown, with reforms coming in April 2017 focused on enforcement in the public sector and then the now postponed extension to the private sector. It’s designed to reduce so-called ‘disguised employment’ where companies hire contractors who pay less tax, when they should actually be designated as employees. There are specific criteria to determine a worker’s status, such as how much control they have over their hours and company practices.
The IT effect
For an industry that relies a lot on its contractors to fill the tech skills gap we all know the UK is facing, there is justified concern about the impact this will have on the private sector. The truth is that the effects won’t be truly known until the legislation comes in.One fear among the private sector is it will lead to a further shortage of skills in the IT industry, as companies are forced to reduce their reliance on contractors. However, there is the potential for IR35 to result in an increase in direct employment opportunities as companies and contractors agree on the need to create a full-time position. On top of this, companies can see this as a chance to invest more in young talent and look to close the skills gap in tech through apprenticeships and graduate schemes.
More time to prepare
With the legislation delayed for another year, many in the industry will be relived at being given more time to prepare. Many will have been well under way for their preparations as the clock ticked towards the implementation. While it is undoubtedly better to be ahead in their preparation, the delay has had adverse side effects, with some contractors taking fixed term contracts only for the legislation not to go through. This can cause friction and resentment if not at least discussed, following the postponement announcement.However, for businesses still working on ensuring compliance, it’s vital they have the processes in place to effectively determine the employment status of their workers and avoid any panicking as the next deadline approaches. Both companies and contractors that fall foul of this can be issued with fines and may have to pay back taxes.For companies, there is a tool called CEST (Check Employment Status for Tax), known as the IR35 Test, that can help them evaluate individual contractors. This test asks a series of questions relating to the duties of individual workers and evaluates their status based on their answers.Contractors can also take the same test to find out their employment status, but they should both look to learn from the mistakes of their public sector counterparts where the legislation is in effect. It’s also worth contractors doing more research into their current employment contract to see what working practices are expected of them – some changes to this scope of work can help them pass the test, but it’s always best to seek legal advice on this. Contacting their accountant to discuss their financial status and tax implication is a good step too.So, with a year to go, it could be fair to say some in the private sector of the tech industry will be breathing a sigh of relief, especially those that are still working to get themselves prepared. Others will be wondering if the legislation is postponed in a crisis, why is it coming in at all? What’s clear is it’s still an industry that’s confused as to the lasting effects it will have on the tech skills gap businesses are facing. Over the next year, organisations will need to ensure they’ve taken the necessary steps to ensure compliance and are prepared for the potential effects, regardless of the final outcome next year.Dominic Harvey is Director of CWJobs
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