News that another major player in the banking sector has initiated a new ‘engagement approach’ for contractors comes as a blow for those of us hoping to see a more measured approach to dealing with off payroll reform.
The news that many in the sector have speculated about and feared came to fruition, with news that Barclays joined others in declaring they will no longer engage with off payroll resource.
Making status determinations comes with obligations – they must be made using reasonable care, the contractor must be able to appeal against the decision, and the determination itself must be communicated, with the reasoning, to various parties in the supply chain. Of course, that process takes resource, and therefore costs money.
Any organisation, in choosing to bypass this entirely and declare that temporary resource will only be engaged via a PAYE solution, is effectively declaring those contractors are engaged on an ‘inside IR35’ basis. In doing it this way, any organisation bypasses the various requirements set out in the legislation.
So, is this the way all clients should approach these reforms? No! There are a few critical points to consider when looking at this approach. The first, and I think a key driver, is the profile of the business.
HMRC have made it clear to large organisations that they will be looking very closely at how they’ve approached the reforms, and for organisations that have a high profile, large contractor base and little flexibility in working arrangements, it’s easy to see why they’ve felt very much at risk. For most clients where they have a more moderate contractor base and can take a pragmatic look at working arrangements, it’s much more balanced, and their approach should reflect this.
Another factor is that we see in some industries there’s a fairly similar approach from many of the key players. If thousands of contractors in those sectors suddenly have itchy feet, then anyone in that sector, or indeed in industries that can make use of those skills, who sets themselves apart with a fair and robust IR35 approach is going to be able to attract top talent.
There is fairly extensive research from a number of bodies involved with the public sector reforms and those speaking extensively to those in the private sector. Whilst the specific amount varies, there is no piece of research that does not indicate an increase in overall cost, decrease in productivity, and increase in talent shortage, that comes from a move to engaging contractors on an inside IR35 basis. How many businesses can afford that?
It’s unclear at this stage how this will play out, but I know I’ve spoken to plenty of contractors at these organisations who are operating on a genuinely outside IR35 basis. They are now worried that any change in status will be interpreted by HMRC as a reflection of their past status, and prompt enquiries (or worse). There’s a feeling from contractors that in taking this approach only one party has been considered, and it’s fair to say that contractors are keen to engage with organisations that understand the balance of risk and taking a fair approach.
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