It seems that upcoming off-payroll reforms in the private sector could be starting to bite in the IT industry. IR35 changes are set to come into force in April 2020 and have been the subject of heavy criticism from both industry leaders and contractors alike.
Some fear that changes in rules, which may see some contractors classed as employees and subject to greater tax liabilities, will lead to experienced contractors being forced out of the market. It seems that this may already be the case, with The Register reporting that recent figures from the ONS (Office for National Statistics) show a 2.4% dip in IT contractor numbers in 2018. This follows years of steady growth, with an average of 8% per year for the last 10 years. These recent figures may be a concern for many businesses that depend on IT contractors to support their organisations.
When we look at the impact on the public sector after the off-payroll reforms in 2017, we can see that there was a significant loss of contractors. A report from Contract Calculator revealed that 76% of public sector departments lost highly skilled contractors, while 71% of projects were delayed or cancelled. A further study from IPSE and the CIPD found that 51% of public-sector hiring managers said they had lost skilled contractors as a direct result of the changes to IR35 regulations. 71% said they were now struggling to hold on to their contractors. These figures are sure to make gloomy reading for IT contractors and businesses alike as they prepare for reform in the private sector.
However, there is some positive news when it comes to IR35 and contractors. A recent court ruling found in favour of Richard Alcock, IT contractor, after HMRC said that he owed more than £200,000 in NI contributions and income tax. This ruling will hopefully have a positive impact on the way HMRC review similar cases in the future. Although some IT specialists will remain concerned that they are at risk of a lengthy legal battle if they choose to pursue a career as a contractor following off-payroll reforms.
The truth is that no one can give a definitive answer when it comes to the contractor landscape post-April 2020, although some loss of contract talent seems inevitable. Organisations must take steps now to understand and protect their contract relationships while remaining open to other talent channels. Ensuring that they have access to the skills they need to thrive as we move into a new decade.
If you’re preparing for IR35, we can help. Cititec have partnered with IR35 experts Brookson Legal to provide a complete off-payroll solution. Providing expert support, a full contractor review, and indemnity protection against HMRC challenges. Get in touch today to find out more and ensure you're IR35 ready.
Join us at Devonshire Terrace on 20th November at 8.30am to 10.30am to hear from IR35 experts and discover solutions to key off-payroll challenges.