Last year, we reported on how IR35 reform could impact the financial services industry. At the time, there was considerable doubt around when these changes would take effect. Just a few months after we published that article, Prime Minister, Boris Johnson stunned many across the United Kingdom by winning a hefty majority in Parliament. While many have urged him to rethink the reform, Johnson’s administration has indicated that broad implementation of IR35 is coming this April.
As we discussed last year, IR35 was originally designed to prevent government workers from claiming contractor status for tax purposes. If the proposed April 2020 reform becomes law, IR35 would also apply to private sector organisations. This is a hot topic across the financial services industry, which traditionally relies on contract workers to meet short and long-term staffing needs. Although some experts believed IR35 would create clearer definitions of contractor status, the proposed changes have caused more confusion for employees and employers alike.
With April just around the corner, let’s take a closer look at what we’ve learned since our original post and how you can prepare for the new IR35 changes.
How IR35 Reform Would Impact Financial Institutions
Private sector organisations across the United Kingdom are particularly concerned about the proposed requirement to determine whether their contractors meet HMRC’s definition of “self-employment.” This is still under appeal, but it would require employers to withhold PAYE and National Insurance from all contractors that fall inside IR35.
An employer could withhold taxes from its contractors whilst continuing to work with them through their personal services companies (PSC). However, this would likely create ongoing legal issues for the organisation. If a contractor works within IR35 but does not receive employment benefits, that person could make the case that the company is violating employment law.
Employers can also transfer contractors to employment contracts ranging from full-time status to zero hours per week. While this would satisfy employment law, this option is still rife with additional administrative requirements and could impact an organisation’s reputation and its bottom line.
IR35’s Current Impact on Private Sector Contractors
The shockwaves of IR35 reform have reverberated across the United Kingdom for the better part of a year. Many organisations have responded to IR35 reform by rethinking how (or if) they engage with contractors at all.
In our last post on these proposed changes, we discussed how HSBC, Lloyds, and Morgan Stanley decided to stop the direct hiring of contract workers. This trend has only become more pervasive across the United Kingdom. The Register recently reported that GlaxoSmithKline issued an ultimatum to their current contract workers. If their current contractors do not switch to PAYE, they will be terminated by the organization. While it still remains to be seen if IR35 reform becomes law in April 2020, it’s clear that some of the world’s largest companies aren’t taking any chances.
How to Prepare for April 2020
Eliminating relationships with contract workers altogether might be an easy response to IR35 reform. That doesn’t mean it’s the only response.
First, banks should re-evaluate the possibility of moving some roles to near-shore locations. For example, cities such as Belfast offer a compelling combination of highly-educated, native English-speaking professionals located in the same time zone as London, but at a much lower price point. Yahoo! Finance reports that Digital Reasoning opened an office in Belfast earlier this month because of the unique perspectives and seasoned expertise of its workforce.
Additionally, consider working with a consulting services firm to expand your contractor pool, especially if you’re open to doing so abroad. This is something we’re particularly passionate about at Vox. Not only do we offer a flexible staffing model providing junior and experienced staff to meet our clients’ project and short-term staffing needs, but we offer these services at a lower price point than the ‘Big Four’.
We can also work with you to move your existing contractor pool to our staffing model, removing the hassle and risk arising from engaging with contractors directly.
Alternatively, the Vox Service Delivery Centre, operating from our office in Belfast, will allow you to successfully manage critical business processes outside of your institution’s walls, which has the potential to significantly reduce cost, with the added benefit of freeing office space.
Want to learn more about how Vox can help your organisation navigate the new IR35 changes? Click here to get in touch.