It's been just over a month since the UK government announced a postponement of the impending IR35 legislation that would hit the private sector in April 2020. The legislation has long sparked debate over whether this is the right approach or a big mistake. . In fact, most recently, the House of Lords produced a sweeping report alleging that the legislation was "riddled with problems, injustices and unintended consequences". Before we delve into this box of worms, we must first acknowledge the approach taken by the government to delay this decision, which is widely seen as a positive by all industries, but especially technology. This comes at a time when the technology industry is playing a vital role in the crisis we are all facing. To keep people connected to their friends and family, to build and support the infrastructure that makes it possible to even the extremely important manufacturing of ventilators. So with any delay of at least a year, it's worth reviewing exactly what IR35 is, what its potential impact might be, and what the impact of the delay might be.
IR35 - a fault
The IR35 legislation essentially aims to determine whether workers are subcontractors or employees of a company. It was first introduced in 2000 by the then Chancellor, Gordon Brown, with reforms due in April 2017, focusing on application in the public sector, then the extension has now been deferred to the private sector. It is designed to reduce so-called "shadow jobs" where companies hire contractors who pay less tax when they should in fact be designated as employees. There are specific criteria for determining the status of a worker, such as the control you have over your hours and company practices.
The computer effect
For an industry that relies heavily on its outsourcers to fill the technology skills gap we all know the UK is facing, there is justifiable concern about the impact this will have on the private sector. The truth is that the effects will not really be known until after the entry into force of the legislation. One of the private sector's fears is that this will lead to further skills shortages in the IT industry, as companies are forced to reduce their reliance on employers. However, there is potential for IR35 to translate into more direct employment opportunities, as companies and employers agree on the need to create a full-time position. On top of this, companies may see this as an opportunity to invest more in young talent and try to close the technology skills gap through apprenticeship and postgraduate programs.
More time to prepare
With the bill delayed by a year, many in the industry will be glad to have more time to prepare. Many will have made good progress in their preparations as time for implementation runs out. While it is undoubtedly preferable to get things done early, the delay had negative side effects, with some contractors only taking fixed-term contracts so that the legislation would not be adopted. This can cause friction and resentment if not discussed at least after the announcement of the postponement. However, for companies that are still striving to ensure compliance, it is essential that they have the processes in place to effectively determine the employment status of their workers and avoid panic as the next deadline approaches. Businesses and entrepreneurs who are victimized can be fined and required to repay taxes. For businesses, there is a tool called CEST (Check Employment Status for Tax), called the IR35 Test, that can help them assess sole proprietorships. This test asks a series of questions related to the duties of individual workers and assesses their status based on their answers. Entrepreneurs can also take the same test to find out their employment status, but both should try to learn from the mistakes of their public sector counterparts when the legislation is in place. It is also worthwhile for employers to do more research on their current employment contract to see what employment practices are expected of them; some changes in this area of work may help them pass the test, but it is always best to seek legal advice on this matter. Contacting your accountant to discuss your financial situation and its tax implications is also a good move. So a year from now, it might be fair to say that some in the private tech industry will breathe a sigh of relief, especially those who are still working to prepare. Others will wonder if legislation is postponed in a crisis, why come in at all? What is clear is that it is still an industry that is confused about the lasting effects it will have on the technology skills gap facing companies. Over the next year, organizations will need to ensure they have taken the necessary steps to ensure compliance and be prepared for the potential effects, regardless of the end result for the coming year. Dominic Harvey is director of CWJobs