As we patiently wait for the results of the IR35 consultation to be released, yet more organisations have outlined what their stance will be on limited company contractors once the off-payroll reforms in the private sector come in during April 2020.
The latest to follow in the footsteps of HSBC have been Morgan Stanley and M&G Investments, both of which have announced that they simply will not be hiring anyone to work through a personal service company in order to avoid the reforms. In fact, Morgan Stanley’s announcement has stated that they will be changing the way they work with contractors from October 2019 - six months before the reforms are expected to take place.
The idea that these large organisations are side stepping the off payroll reforms presumably because they feel they are too complicated and risky is disappointing, considering that contractors have been expected to make decisions on the IR35 status of contracts for so long without the resources available to these large organisations.
The options being given to affected contractors seems to be:
- To continue with the contract but operate inside IR35 - meaning that the contractor will miss out on employment benefits, but still have the associated costs of running their business
- To leave the contract entirely - surely causing frustration for the contractor and a lot of work from the organisation to find a replacement
- To become a permanent employee - leading to costs for both the organisation (having to pay employers National Insurance) and contractor (the costs associated with potentially closing their limited company)
It is widely believed that following the April 2020 reforms, organisations will need to use ‘reasonable care’ when assessing the IR35 status of a contract. By blanket assessing all contracts in the way that the above organisations have chosen to do, they are ignoring this.
What organisations would lose by sidestepping the IR35 reforms
Of course this is concerning news for contractors and the industry, especially as there is still eight months before the reforms are due to take place. However, hiring managers and key stakeholders within these organisations should also be concerned. By potentially losing out on limited company contractors wanting to work for them, these medium and large businesses could be facing huge losses, including:
- A skills shortage - contractors are the perfect answer to a skills gap within an organisation and when hiring a contractor you are hiring their wealth of experience and knowledge. By ostracizing contractors who are working through their own limited company
- Additional costs - for any contractor happy to work either inside of IR35 or become a permanent employee there would be associated costs for an organisation such as having the pay employers National Insurance (NI)
What can organisations do instead?
For businesses who are concerned about the additional work that may come their way following the reforms, creating a blanket approach to the IR35 status of contractors is not the answer. By utilising the next eight months before the reforms are released to prepare, partnering with an IR35 expert (such as the team at Parasol) and defining their process for assessing the IR35 status of each contract, organisations will be far better prepared.