Contractors remain unprepared for IR35 tax changes

IT contractors and the companies that use them need to prepare to avoid IT disruption

A recent survey by Ernst and Young TaxChat (EY) of over 500 self-employed workers, has found that only three percent believe that the forthcoming changes to the IR35 tax regime should go ahead next month and 44 percent think that the Government should delay the changes.

These are perhaps unsurprising stats bearing in mind the amount of upheaval the changes are likely to make for these contractors. However, the changes are coming and it is therefore worrying to read that 72 percent of the contractors who will be impacted, have not yet made any preparations ahead of the deadline.

Changes to IR35 were first introduced in the public sector in 2017, and were originally set to be implemented in the private sector last year but were delayed for a year in the wake of the pandemic. Despite this the EY survey found that a third of respondents had not heard about the changes at all.

There was significant disruption in the public sector when the changes were introduced with many contractors leaving public sector organisations, either by choice or with organisations deciding to only have full-time employees. IT projects were delayed and the management of some organisation’s day-to-day IT was impacted.

It would be disastrous for the private sector if we saw similar levels of disruption, especially with many struggling after a year of constant change and uncertainty. With just a month to go we all need to ensure that any gaps are closed, contractors fully understand the changes and that companies also take on board what a sudden loss of contractor might mean to their business.

We have already seen major companies, including Deloitte, Metro Bank, Zurich, Three UK and Bol, ban limited company contractors, with more likely to be doing the same over the coming weeks. However, as Rob Batters, Director of Managed and Technical Services at Northdoor plc, explains smaller companies may well struggle with IT projects and the day-to-day running of their IT systems once their relationships with contractors becomes more complicated.

“Despite years of discussion and an additional delay caused by the pandemic, it is worrying that there appears to be a surprisingly low awareness of the changes to IR35 and the potential impact it will have on both contractors and companies. Our concern is that if the contractors themselves are unaware, then in all likelihood the companies that use their services will be too. This could result in both parties being taken by surprise causing a potential loss of support for companies. When this comes to IT, this could be particularly difficult for smaller firms.

“As we saw in the public sector when the changes were introduced in 2017, there was disruption to IT projects as well as the day-to-day management of IT services. This is likely to happen in the private sector too unless companies and contractors begin to address the issue. Many larger companies, particularly in the financial services sector, have already made the decision to cut relationships with contractors, bringing on full-time staff or speeding up IT projects to ensure they are completed before 6^th April.

“Smaller companies, that might not have the budget or logistics for a large internal IT team, tend to rely on contractors for many of their IT needs. Unless these companies sort out an agreement with the contractor, or find an alternative soon, it will put real pressure on their IT services.

“The changes to IR35 are coming whether we like it or not, and both consultants and companies have to prepare for the inevitable. Some companies are turning to Managed Service providers, taking away the complications surrounding IR35, whilst ensuring that IT projects and infrastructure remain secure, running optimally and plugging any gaps. It is crucial that we come together as sector to work out the best way forward and to make sure that companies are not left adrift” concluded Batters.