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Targeting IT Talent

Off-Payroll Working rules in the Private Sector (IR35) - What to expect and how to avoid impact on delivery

We are edging closer to the extension of the off-payroll rules into the private sector (IR35) from 6th April 2020 whereupon the client, and not the contractor, will be responsible for assessing IR35 status.

For Inside IR35 assignments, the fee payer will have to make tax and national insurance deductions before paying the personal service company.

It is highly unlikely that HMRC will delay or change these new rules despite pressures from various groups and a review by the government.

So what will happen to the IT contracting market?

Firstly, and as always, as there is a shortage of IT talent in the permanent and contract markets, demand is not going to reduce for IT contractors as organisations still need specific expertise to deliver projects, change and evolution. Furthermore, IT contractors are often required to fulfil roles deemed as permanent while organisations try to recruit the right permanent candidate.

The suggestion that many IT contractors will leave the market and/or the UK is unlikely as that is not a viable option for those with significant financial or personal UK commitments. There were similar suggestions in 2000 when IR35 was first introduced but it didn’t happen.

It is however reasonable to assume that some will be tempted into permanent employment. It is likely to be those that are newer to contracting, and also those who are unsure if the contracting life suits them in terms of the uncertainly associated with contracting.

What is likely to happen is that contractors will be attracted to contracts Outside IR35. The contractors we’ve talked to recently state they have a strong preference for contracts Outside IR35 and quote rates for such contracts. They are not sure what rates to request for roles Inside IR35.

For organisations with contracts Inside IR35, it is going to be tougher to attract and secure IT contract resource. Therefore to attract IT Contractors to roles Inside IR35, I believe that organisations will have to increase rates that effectively absorb the additional tax / NI borne by the contractor and therefore compete with the financial rewards offered by contracts Outside IR35.

You just have to look at when the Off-Payroll working rules were introduced to the Public Sector in 2017. The new rates offered for roles Inside IR35 became unattractive, compared with those in the private sector which were predominantly Outside IR35, so IT contractors left the public sector roles and went to private sector contracts. A study by CIPD and IPSE in 2018 found 51% of public sector hiring managers thought they had lost skilled contractors because of the 2017 IR35 rules while 71% were facing challenges retaining their contractors. And the results of this were project costs rising, projects being delayed and, in some cases, projects even being cancelled.

In the latest JobsOutlook (January 2020) by REC (Recruitment & Employment Confederation), of all the job functions in the temporary / contract sector, the skills shortage in the Technology sector remains the skill area of greatest concern. It also shows increase in demand for IT contractors for the start of 2020.

Undoubtedly there will be much turmoil in the market in April.

If you intend to retain or hire IT contract resource into contracts Inside IR35 then consider increasing your budget / pay rate to make your contract as financially attractive as those Outside IR35. If this is not possible then you and your recruiter should present other benefits of the contract such as exciting projects / technology /achievements that can go on their CV to potential contractors.

This should increase your ability to attract talented IT contractors, reduce your risk of delayed delivery of projects and services, and so avoid any impact to the business.

Author: Vicki Douglas

Posted 26.02.2020

Category: IT market news | For candidates | For clients

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