IR35 isn’t new, and it shouldn’t come as a surprise to firms that April 2020 will see a major change to how big companies “employ” contractors.

In conversation with UK customers so far this year, one topic keeps coming up time and again – IR35. While this isn’t a new rule (its been around since 1999), a new update coming in April will create a significant problem for UK firms employing FIX consultants across their onboarding teams.

IR35 applies where a contractor provides their services via an intermediary (such as a Limited company) and is, therefore, an employee in all but name. If the contractor was engaged directly, he or she would, therefore, be considered to be an employee for tax purposes. Although the consultant performs the same tasks as a regular employee, their take-home pay can be considerably higher, thanks to reduced tax and social security payments. It’s a zero-sum game, however, so the financial benefits to the consultant and “employer” could leave HM Revenue & Customs short by an equivalent amount.

This April will bring the latest attempt by HMRC to close the loophole; by transferring the responsibility to determine whether an engagement is disguised employment or not onto the company rather than the contractor. While IR35 impacts all sectors of the economy, FIX connectivity may be hit hard because of the high concentration of consultants working in the field.

So what options are there for firms affected by the change to IR35?

Option 1:

Convert consultants into permanent employees (if you can)

Conversion is probably the path of least resistance for firms but is unlikely to be the cheapest, as consultants have a strong negotiating hand. Consultants will likely propose (high) day-rates, inflated to offset the higher tax and social security payments, which will make them appear to be very expensive overall.

Option 2:

Let consultants go

If firms face budget constraints, then they may need to let consultants go, and either try to manage with existing employees, attempt to replace them with new graduates, or (possibly) outsource to lower-cost locations. While this option may free up budget, it also carries significant business risk, as a lot of institutional knowledge may leave the firm.

Option 3:

Use specialist software

Firms may turn to new software to increase process automation and efficiency. However, I often talk to firms who assume that taking this approach will either be slow to implement or cost more than hiring. The reality is, specialist platforms (such as Fixspec) are neither slow, nor expensive, and are already being successfully utilised by multinational firms.

Ultimately the approach your firm chooses to take will depend on several factors, not least the number of contractors you have, and the size/complexity of your business. We believe that the optimal approach would incorporate elements of all of the above; convert critical contractors into employees, task them to install automation software designed to boost efficiency, delay additional hires and open up new outsourcing opportunities.

Faced with a looming deadline, IR35 creates a real headache for firms employing FIX contractors. And in a rush to avoid short-term pain, firms risk making poor long-term decisions.

A more optimistic view, however, would recognise the IR35 changes as a blessing in disguise – the impetus and opportunity to review FIX connectivity through a more strategic lens; a rare chance to fix (lower-case ‘F’) your connectivity for the future.

Talk to us about how the fixspec platform can help navigate IR35.

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