Off Payroll Repeal: So What's Next?

With the dust of the Off Payroll repeal now settling, here is my look ahead to what life will be like in the new (old) IR35 era:

Hiring Companies

Hirers have been tying themselves up in knots over off-payroll ever since the legislation was first announced, and it’s not too difficult to understand why. The ability to continue hiring the best contract talent (in what for most of us has been a supply-led market), combined with an increase in perceived risk is a conundrum that many hirers have been unable to resolve. Hiring managers, in the front lines and in need of specialist skills, have often found themselves at the wrong end of the table when company policy is devised, and in consequence have found it more difficult or more expensive (or, probably, both) to attract talent, which has compromised their ability to deliver projects. So there will be widespread relief in the hiring community, that’s for sure, and we can expect the majority of clients, now that the spectre of risk has been removed, to open their doors wide again to limited company contractors.

As a word of caution however, I am not sure that this will be the entire picture though. I have seen some companies take an almost evangelistic, moralistic stance on limited company contractors: “well they’ve had it good for too long anyway haven’t they”; “well they are just the same as permanent staff when all’s said & done”…when the Tories say “people doing the same work should pay the same tax”, these are the people that believe them. We may yet see some hiring companies keeping those doors closed to limited companies. Beware!

Contractors

Whilst I don’t recall the original Intermediaries legislation being particularly popular, I haven’t come across many contractors who haven’t welcomed the off-payroll repeal and the return of IR35. The main reason is that most contractors want to have control of their own destiny, and that includes their tax affairs. To many, the contracting life isn’t just a decision between two differing tax regimes, it’s about being captain of your own ship, and limited companies symbolise that concept.

There will be contractors currently determined inside of IR35 thinking very carefully about flipping themselves back to outside of IR35 once the responsibility for determination returns to them in April, but that isn’t a straightforward decision. Will this be a red flag to HMRC? Will there be an amnesty on such determinations from HMRC (unlikely in my opinion). Would it be better to make a fresh start somewhere else? There may well be movement in the market.

Also, contractors may view the issue of self-determination differently in the future. Many may take much more of an interest in any potential hirer’s position on some of the key IR35 building blocks, such as supervision & control, personal service (substitution) and mutuality of obligation. It may not be good enough for some contractors to simply have a contract that facilitates outside of IR35 working, they may wish to dig deeper in their due diligence with the hirer from April. When hirers back in 2000 realised that they were not part of the IR35 chain of liability, their knowledge and interest in the subject slowly declined. They may not be afforded the same luxury this time around (and rightly so, because if they are to benefit from the flexibility and skills of limited companies, they should understand how to engage with them).

IR35 insurance, which many recruitment companies have turned to as a means of managing their risk under off-payroll, may remain popular with individual contractors, as the risk transfers back to themselves.

Recruitment Companies

In my view, one of the biggest injustices in the off-payroll legislation is the liability for the status determination being laid at the fee payer’s door, which would generally be the recruitment agency, if there is one in the chain. Of the three parties in the chain (contractor, hirer, agency), the agency has the least visibility on what actually happens on the ground. The agency can set the right contractual framework in place, but they have little influence and zero control over how the engagement actually plays out…in other words whether what actually happens is genuine self-employment or not….so if the contractor is found in the courts to be inside of IR35, the agency carries the can for someone else’s assignment determination and ultimately someone else’s tax and NIC.

So I’ll not deny that there is relief at the divestment of this risk, but that doesn’t mean to say that recruitment agencies should feel completely absolved of responsibility. I have always felt it is the recruitment company’s role to use its knowledge of market conditions, trends, and indeed legislation, to help hirers and work-seekers in the recruitment process. Off-payroll put us in an invidious position, where we often knew that the answer to the client’s problem would be to hire a limited company, but in advising this we put ourselves in the firing line. Returning to the original IR35 legislation returns recruiters to a position of impartiality, where we can do our best work, offering help and guidance without the perception of a vested interest.

I suspect that the next twelve months, running up to and then following April 2023, will be a tricky transitional period for the industry. Whilst we understand what the off-payroll repeal means in practical terms, what we don’t know yet is how HMRC will respond. To HMRC, off-payroll very neatly solved an old problem…whilst there was the collateral damage of countless genuine limited company contractors being thrown under the bus, the legislation fundamentally achieved what HMRC wanted to achieve, which was to make it extremely difficult for people who really ought to be employed, to claim they are self-employed. How will HMRC prioritise, how will they target, how will they police perceived non-compliance in the future?

Whatever happens, the role of a good recruiter is always to successfully bring hiring companies and contractors together and the next 6-12 months will be an opportunity for those that are most knowledgeable and empathetic to excel in that.