Reply to: So what now?

[WordIsBond]

Prepare how? For what?

Private sector cannot (and IMHO should not) prepare for something which may or may not happen, and where there is no clarity over how things would work in the future - that would be irresponsible towards their shareholders. CEST makes an assumption that every public sector role includes mutuality of obligation, which is why HMRC didn't even build ion a single question about it. Private sector roles cannot (and should not) make that presumption at all, so they cannot make preparations because they do not know what tool will be in place that accurately reflects case law and asks questions around all three pillars of employment.

There is no suitable tool available to all private sector companies to use, so what should they prepare and how?

It would be irresponsible towards shareholders not to do contingency planning. This is likely to hit some private sector clients hard, increasing costs, creating potential liabilities, etc. They had better be ready to take part in this consultation, and be ready to give some assessment of how it is likely to impact them. "We don't like it" doesn't cut it.

[IsaacD]

Prepare how? For what?

Private sector cannot (and IMHO should not) prepare for something which may or may not happen, and where there is no clarity over how things would work in the future - that would be irresponsible towards their shareholders. CEST makes an assumption that every public sector role includes mutuality of obligation, which is why HMRC didn't even build ion a single question about it. Private sector roles cannot (and should not) make that presumption at all, so they cannot make preparations because they do not know what tool will be in place that accurately reflects case law and asks questions around all three pillars of employment.

There is no suitable tool available to all private sector companies to use, so what should they prepare and how?

They could prepare by assuming the same CEST tool will be used for them as it is for the public sector. This is a fair assumption. The tool is crap, obviously with multiple flaws, some of which you've mentioned, but it's available to use if they wanted to find out what happens if the current public sector process is applied to the private sector..

[TheFaQQer]

1) More warning. The public sector launch of this was a shambles, the online questionnaire only arrived a few weeks before the deadline, giving management very little chance to understand and resolve, which meant a lot of undoubtedly wrong outside determinations. The private sector could start preparing now, if they really wanted.

Prepare how? For what?

Private sector cannot (and IMHO should not) prepare for something which may or may not happen, and where there is no clarity over how things would work in the future - that would be irresponsible towards their shareholders. CEST makes an assumption that every public sector role includes mutuality of obligation, which is why HMRC didn't even build ion a single question about it. Private sector roles cannot (and should not) make that presumption at all, so they cannot make preparations because they do not know what tool will be in place that accurately reflects case law and asks questions around all three pillars of employment.

There is no suitable tool available to all private sector companies to use, so what should they prepare and how?

[IsaacD]

The vast majority of my contracting experience is private sector (banks/pharma) but I am currently in an outside ir35 contract within the public sector and I've a few thoughts.

My view is it will be different in the private sector for a couple of reasons.

1) More warning. The public sector launch of this was a shambles, the online questionnaire only arrived a few weeks before the deadline, giving management very little chance to understand and resolve, which meant a lot of undoubtedly wrong outside determinations. The private sector could start preparing now, if they really wanted.

2) More distance. HMRC are able to put more pressure on other public sector bodies than they will be able to on the private sector. Ultimately it will be a compliance/risk register issue for the private sector and each company will make it's own decisions depending on their risk appetite (i.e. risk of being investigated vs risk of losing some talent).

On the plus side, the off-payroll rules have helped increase awareness (if not possibly understanding) of ir35. In this contract I got the not unusual request to do some training, but I said it wasn't in my contract - this sort of response can get you a label of "unhelpful/awkward" in certain contracts with implications at renewal, but here they quickly agreed and dropped it. Generally it's a good position to be in, no back of the mind worries about ir35 investigation and a clear statement of work to deliver to.

Also, whether individual contractors think they are inside/outside of ir35 is an irrelevance under the off-payroll rules. Either you are and you suck it up/negotiate a new rate or you leave - it's far more binary than it was, which is good if you're on the right side of the line.

I suspect the majority of project based work in the private sector will be outside, because the work itself is temporary so the risk is temporary. The BAU work will be under a different sort of pressure. If I'm wrong then consultancies are going to experience a boom in business.

[Fred Bloggs]

Of course, on the other hand, this could all be the final nail in the coffin of UK contract project houses in the oil and gas (and related sectors). Usually about 75% of projects are contract engineers and designers. Already the large majority of the design work is being done in India and has been for several years now (in fact safe to say all of it now). Most of the higher level engineering is now also being done there. The only work that comes to the UK design houses pretty much is now the conceptual and front end studies that actually do need the expertise that we have here. It is very likely that the entire project cycle for major oil and gas projects will never again be done in the UK. In fact, it's a certainty. Folks like me have had to steadily move up the food chain to keep ahead of the low cost engineers and designers. But that game is almost played out now too. It is a very steep sided pyramid and there's no room at the top of it any more. Sadly, it looks like we have lost yet another high skill/high pay industry to Asia.

[Maslins]

Agreed. How are HMRC going to prove a contract is caught if both the client and contractor don't want it to be and have all the correct paperwork and answers prepared? Contractors get caught these days because clients don't have a vested interest in the outcome, so are sloppy with the terminology and/or approach.

This is my view.

To date, I don't think many people have taken IR35 seriously:
- end client doesn't care,
- individual has it as a little worry in the back of their mind, but reality is the number of IR35 enquiries vs number of contractors means chances of being pulled up was trivial.

Assuming the rules do get spread to private sector, the end client will suddenly need to care. I imagine there will be more general guidance that will become the norm, perhaps coming from the likes of QDOS/Bauer & Cottrell. End clients will have a more clear cut choice from two options, with very different contracts (and hopefully working practices) accordingly. Are they prepared to accept the "downsides" that come with a legitimate contractor. Things like right of substitution, and the contractor deciding how they're going to do the task. If they accept that, it can be outside IR35, meaning less hassle for them, and contractor wins (so perhaps opens up a better calibre of worker, and/or lower headline rate). Or, they'll decide they're not prepared to put up with that, they want to "control" the person, in which case they, and the worker, will need to accept it's inside (or more likely either contract via an umbrella or go permie).

I don't see it being as cataclysmic for the contractor market as some predict.

[fidot]

I can - its called profit. And the paperwork required for a project or even maternity support wouldn't be that difficult to keep. Here is the contract, here is the statement of work - the person started then and the last invoice was paid on.....

Agreed. How are HMRC going to prove a contract is caught if both the client and contractor don't want it to be and have all the correct paperwork and answers prepared? Contractors get caught these days because clients don't have a vested interest in the outcome, so are sloppy with the terminology and/or approach.

[bobspud]

Not if they take the risk averse approach when A through to Z only offer inside roles. I simply don't see why a company would open itself to the risk of classifying a contractor as Outside only to have HMRC come knocking a few years down the line because HMRC reckons they got the determination wrong. The simple and safe option would be to only offer contracts on an inside basis and let the contractor deal with it.

Do you mean risk adverse like heavily loading debt onto the balance sheet to reduce corporation taxes or bouncing your profits accross several principalities to create 0% tax structure?

Yeah our private sector is very risk adverse. Don’t forget that everyone is watching Uber flail around trying to defend itself from having to grant taxi drivers holiday and sick pay...

There is not a company in the world that is going to go out of its way to purposely end up in that seat.

[eek]

If you are private sector client A and you decide that your contractor is in scope. All of a sudden private sector client B has an opportunity to benefit by stating they want out of scope professionals for their organisation and you just lost your contractor. Thats just how competition works.

Contractors will need to hike their rates an awful lot before Wipro or Infosys start to look attractive.

*EDIT*

Thinking about it some more it has also occurred to me that If I was an agency I would be tulipting bricks. One of the only reasons for their prevalence has been to act as a barrier for end clients that were frightened about employment rights and other such issues.

Putting the responsibility for owning the choice of hiring a temp vs freelancer allows them lots more control and should rates need to go up I can see a middle man that will be far easier to remove from the equation.

Agent's do provide a filtering service - what I suspect could happen is that that filtering service could be done on a fixed fee rather than a percentage basis....

[eek]

Not if they take the risk averse approach when A through to Z only offer inside roles. I simply don't see why a company would open itself to the risk of classifying a contractor as Outside only to have HMRC come knocking a few years down the line because HMRC reckons they got the determination wrong. The simple and safe option would be to only offer contracts on an inside basis and let the contractor deal with it.

I can - its called profit. And the paperwork required for a project or even maternity support wouldn't be that difficult to keep. Here is the contract, here is the statement of work - the person started then and the last invoice was paid on.....

[BoredBloke]

If you are private sector client A and you decide that your contractor is in scope. All of a sudden private sector client B has an opportunity to benefit by stating they want out of scope professionals for their organisation and you just lost your contractor. Thats just how competition works.

Contractors will need to hike their rates an awful lot before Wipro or Infosys start to look attractive.

Not if they take the risk averse approach when A through to Z only offer inside roles. I simply don't see why a company would open itself to the risk of classifying a contractor as Outside only to have HMRC come knocking a few years down the line because HMRC reckons they got the determination wrong. The simple and safe option would be to only offer contracts on an inside basis and let the contractor deal with it.

[bobspud]

But these public sector bodies found that their contractors upped and left because their contractors didn't face the same rules in the private sector. If that escape route is shut down then what? The more our rates go up, the greater the likelihood they put the roles out to Wipro and the like who don't have all this baggage.

If you are private sector client A and you decide that your contractor is in scope. All of a sudden private sector client B has an opportunity to benefit by stating they want out of scope professionals for their organisation and you just lost your contractor. Thats just how competition works.

Contractors will need to hike their rates an awful lot before Wipro or Infosys start to look attractive.

*EDIT*

Thinking about it some more it has also occurred to me that If I was an agency I would be tulipting bricks. One of the only reasons for their prevalence has been to act as a barrier for end clients that were frightened about employment rights and other such issues.

Putting the responsibility for owning the choice of hiring a temp vs freelancer allows them lots more control and should rates need to go up I can see a middle man that will be far easier to remove from the equation.

[BoredBloke]

But these public sector bodies found that their contractors upped and left because their contractors didn't face the same rules in the private sector. If that escape route is shut down then what? The more our rates go up, the greater the likelihood they put the roles out to Wipro and the like who don't have all this baggage.

[bobspud]

Not so fast
If the rules are in the Public and the Private sector then there is no chance rates will increase. Why would they?

As lots of departments suddenly found out. We are a very in demand profession. TFL and the National Hydrographic Agency had almost 100% of their specialists tell them to get f%cked. When they started blustering about all being caught.

Clients will quickly see that their choice for getting the freelancers that they need is either: declare the role outside and get a choice of skilled contractors or up the rate until one will swallow the 44% taxes.

Maybe if there is a huge drop in people willing to be contractors, but I think most roles will get filled with FTCs.

I think a hell of a lot of contractors are only doing well because they are wrongly declaring themselves outside IR35 those ones will pack up and go permanent. Some may even go bust as they have not been properly pricing the work to take downtime into account.

Rates may go up by £50 on a £500pd role.

Nope rates in government are going up like a Tesla rocket. After yesterdays 3 billion preparation statement I think they are going to be fighting each other like mad for contractors as most of them have not started the work yet...

There is always someone willing to do the job for 3-6 months for a low rate, inside IR35.

That only happens today because lots of permanent staff jump to contracting without having any idea about rate. I don't think so many will be doing that in future.

[MarkT]

when they see that new talent stops wanting to come for interviews and their day rates for roles have to increase like HMRC's have, they will either ask why this is happening and adjust their attitude or they will swallow the change in price as a cost of business. Etherway it will no longer be the contractor that is owning that risk. .

Not so fast

If the rules are in the Public and the Private sector then there is no chance rates will increase. Why would they? Maybe if there is a huge drop in people willing to be contractors, but I think most roles will get filled with FTCs.

Rates may go up by £50 on a £500pd role.

There is always someone willing to do the job for 3-6 months for a low rate, inside IR35.