0203 026 3870
Newsom Consulting
Delivering Leadership Talent
Newsom ConsultingNewsom Consulting
  • Sectors
    • Rail
    • Aviation
    • Highways
    • Power & Utilities
    • Buildings
    • Defence
    • Major Projects
    • Transport Operators
    • International
  • Our Services
    • Executive Search
    • Talent Mapping
    • Leadership Assessment
    • Outplacement
  • Opportunities
  • Testimonials
  • Insights
    • Blogs
    • Reports & Guides
  • About Us
    • Our Team
    • Diversity & Inclusion
  • Contact Us
  • Sectors
    • Rail
    • Aviation
    • Highways
    • Power & Utilities
    • Buildings
    • Defence
    • Major Projects
    • Transport Operators
    • International
  • Our Services
    • Executive Search
    • Talent Mapping
    • Leadership Assessment
    • Outplacement
  • Opportunities
  • Testimonials
  • Insights
    • Blogs
    • Reports & Guides
  • About Us
    • Our Team
    • Diversity & Inclusion
  • Contact Us

Your Guide to IR35

In 55 days IR35 is coming to private sector.

From 6th April 2020 IR35 will be everyone’s problem and the consequences for transport, infrastructure and construction will be huge.

But how will the legislation actually affect us and what needs to be done?

 

What is changing?

IR35 aims to qualify that individuals operating through a personal service company (PSC), are paying income tax and national insurance if they are a defacto employee. Currently freelance contractors operating through PSC’s to private sector companies classify their own tax status, from April this decision will shift to the fee payer.

When someone is deemed ‘inside’ IR35, they are classed by the fee payer as an employee with PAYE and income tax deducted from the contractor’s pay. Anyone ‘outside’ IR35 is classed as a genuine service provider and can manage their own tax affairs.

The new rules will only apply to medium and large businesses which are defined as having two or more of the following;

  • a turnover of more than £10.2m
  • a balance sheet total of more than £5.1m
  • 50 employees or more

 

Public sector companies introduced these IR35 changes in 2017.

 

Key Facts

  •  94% of freelance contractors wish to avoid contracts placing them ‘inside’ IR35.
  • 73% would only accept ‘inside’ contracts with a significant rate rise.
  • 94% of freelance contractors believe those deemed ‘employed’ for tax purposes should receive employment rights.

 

What are your options?

 

1. Impose a blanket ban on all personal service companies

 

This is a quick option which saves on the administration costs of assessing each contractor individually.

 

However, HMRC state that organisations need to demonstrate that ‘reasonable care’ has been taken to assess the contractor’s status. A blanket ban does not demonstrate this.

 

Transport for London (TfL) took this approach when the rules were rolled out in 2017 for the public sector. They issued a memo confirming all contractors were caught by IR35 and therefore, “blanket banned” the use of personal service companies by their contractors. They later had to retract this policy and they received a lot of backlash for the decision.

 

If you do take this blanket ban approach, then you risk losing some valuable talent who might justifiably be deemed ‘outside’ IR35 (please note this is likely to be a minority, as most will fall inside the IR35 determination).

 

2. Review each contract

 

Conducting an internal review of your contractor population could be a lengthy and expensive process but it will demonstrate reasonable care has been taken and you will have a thorough understanding of who sits inside IR35 and who is a legitimate contractor.

 

In doing this you may discover that a portion of your workforce is legitimately outside of IR35 and therefore no further action will be required for those individuals.

 

Those found to be inside IR35 can be offered permanent positions, although agreeing a salary package the contractor will accept that doesn’t put them out of kilter with their already permanently employed peers is a tricky balance.

 

3. Use an Umbrella Company or an outside agency

 

This will push the risk onto the intermediary as they will be responsible for determining the tax status of the contractors.

 

While this reduces the amount of work involved and administrative costs for the organisation, it will not reduce the financial burden as agencies will increase the fee to cover the higher rates paid to the contractor, plus the cost of PAYE and National Insurance Contributions.

 

4. Do nothing

 

For obvious reasons this is not a bright idea. If the financial risk of burying your head in the sand isn’t incentive enough to act, then consider the legal and reputational damage that can arise if you are found to be breaching regulations.

 

Not only this but imagine the consequences on projects if people were to simply walk out on mass.

 

Determining IR35 status

There are 8 key factors to establish whether or not a contractor’s assignment would be deemed to be inside IR35 or not. The first three are acknowledged by industry experts to be the most important factors.

 

1.  Control & Direction

 

To what extent does the client control where, when and how an individual performs his work. Are they under the direct control of the client?

 

2. Personal Service/ Substitution

 

An employee provides their personal services to an employer, whereas a business would provide its services to a client, rather than the exclusive services of an individual.

 

A lot of freelance contractors may have previously reached an agreement with the client where they have a substitution clause in their contract on the condition that it will never be used. This will no longer be enough, and individuals will need to show how a substitute could be used in practice.

 

This could mean that clients are a lot more reluctant to agree to a substitution clause going forward.

 

3. Mutuality of Obligation

 

A mutuality of obligation exists when an employer expects a worker to undertake work when asked to do so, and the worker expects to be given work on a constant basis.

 

Renewing a contract several times, could be a pointer towards ‘employment’. Problems may arise if, an end client cannot terminate a contract for services immediately, but instead have to provide notice.

 

4. Provision of Equipment

 

Does the individual use equipment provided by the client, or do they use their own?

 

5. Financial Risk

 

How much financial risk does the individual undertake in their work? If all the risk lies with the client, then this is an indicator of ‘employment’ rather than ‘self-employment’.

 

6. Basis of Payment

 

The regularity of payment may have some influence on IR35 status. Self-employed people are often paid by the job, rather than a fixed hourly/daily rate.

 

7. Part & Parcel

 

To what extent has the individual become part of the organisation? Do they have access to staff facilities, attend staff meetings, attend staff social events or receive staff benefits?

 

8. Exclusive Service

 

Does the individual work for just one client, or do they work for a number of clients at once?

 

Opportunities

It’s not all doom and gloom for business, there are several opportunities that IR35 can bring to organisations.

  • Consultancies can massively benefit from the new legislation in that there will be higher demand for consultants to be ‘body shopped’ into projects or bids where someone is required for a fixed term, but companies don’t want to hire a permanent employee and can’t use a freelancer anymore.
  • Businesses that do assess freelance contractors individually will benefit from a competitive edge over blanket determination companies as they will be a more attractive option for the genuine freelance talent.
  • Some freelancers will decide the risks of trying to remain outside IR35 aren’t worth it and will just go permanent. This will provide some opportunities to snap up talent over the next couple of months. Agreeing a realistic salary that is acceptable to both parties is the key.

 

Areas freelancers are used most in Transport & Infrastructure are typically;

  •  Project staff – particularly in the commercial/QS and planning disciplines of major projects.
  • Site based staff for construction firms.
  • Interim Directors – to come in at short notice and lead a business change or turnaround.
  • Bid teams competing to win rail franchises and major projects are often staffed by a majority of freelancers.

 

No matter what approach you decide upon, IR35 is coming to the private sector whether we like it or not. If you are looking at ways to reduce your reliance on interim staff at senior level, please email me back to discuss how we can help.

By Jim Newsom10th February 2020

Author: Jim Newsom

Jim Newsom leads our work in construction and infrastructure having worked in executive search since 1998, recruiting for both public and private sector companies in infrastructure, transport, engineering and construction. Prior to forming Newsom Consulting, Jim spent 11 years working for the one of the UK’s largest independently owned executive recruiters and then two years at a boutique search firm. Jim is a graduate in civil engineering from Liverpool University.

Post navigation

PreviousPrevious post:Movers and Shakers in Transport and Infrastructure – The Headlines from JanuaryNextNext post:UK Major Projects Pipeline Update

Related posts

Movers and Shakers in Transport & Infrastructure – The Headlines from June 2022
30th June 2022
Movers and Shakers in Transport & Infrastructure – The Headlines from May 2022
30th May 2022
UK Major Projects Pipeline Update – May 2022
17th May 2022
3 lessons learnt from Crossrail for future Major Projects
9th May 2022
Movers and Shakers in Transport & Infrastructure – The Headlines from April 2022
3rd May 2022
Executive Search vs Recruitment Agencies – what’s the difference?
25th April 2022

To recieve our weekly blogs please fill in your details below:

Recent Posts
  • Movers and Shakers in Transport & Infrastructure – The Headlines from June 2022
    30th June 2022
  • Movers and Shakers in Transport & Infrastructure – The Headlines from May 2022
    30th May 2022
  • UK Major Projects Pipeline Update – May 2022
    17th May 2022
Testimonials

Over the last few years CAF Rolling Stock UK has worked closely with Jim and Richard of Newsom Consulting to recruit several leadership roles across the business. We have found Newsom to be effective in providing high calibre candidates. We would recommend Newsom for recruiting key leadership roles.

Chief Operating Officer, CAF Rolling Stock UK

Thanks for supporting us in securing some of our industry’s leading talent. Your candidates are always excellent and I find you a pleasure to work with. Looking forward to furthering our partnership in the new year.

Managing Director (Transportation), Faithful+Gould

We recently worked with Newsom Consulting to recruit a key Director position for our UK leadership team. They understood our requirements well, spending time to come and meet with us so they could fully understand our needs. The longlist and shortlist reports were good and very user friendly. Assessment of candidates was accurate and we were presented with a good diverse selection of candidates with different backgrounds. The quality of candidates was first class and we were able to appoint a high-calibre candidate. The process was thorough and good value for money.

Managing Director, STRABAG UK
Newsom Consulting
  • Contact Us
  • Privacy Policy
Footer Menu

We are using cookies to give you the best experience on our website.

You can find out more about which cookies we are using or switch them off in settings.

Newsom Consulting
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.