The Stakeholder Tangle That Is IR35

The Stakeholder Tangle That Is IR35

Who said this would be easy?

As anyone watching market developments regarding the changes to IR35 in the private sector that are due to become effective in April will know there is a continuing lack of clarity that has elicited some kneejerk reactions from major employers, including blanket bans on using resources via personal service companies either directly or through consultancies, a push towards permanent employees or the use of umbrella companies.

As I talk with colleagues about this, there was an angle that doesn’t seem to have had much air and that is the conflicting views and interests of stakeholders within employing companies who now have responsibility for determining IR 35 compliance; conflicts that go a long way to explain industry’s near-paralysis as we approach the deadline.

In no particular order, the stakeholders include

  • Tax
  • Legal
  • HR
  • Procurement
  • Operational & Change management
  • Finance/CEO

 Tax is an interesting one. While there is certainly a fear that if the employing company “get it wrong”, in at least one major house the Head of Tax has been quite vocal about the need to be fair to all employees and not let long-term contractors benefit from tax-saving opportunities and are not available to permanent employees.

Legal like to de-risk matters like this, but it is not clear what actually offers the least risky option. While looking to treat all non-permanent staff, the same may appear attractive; it also opens new risks. If the employing firm has not made an effective assessment, and a consultant/contractor can prove their engagement falls outside IR35, then the employer could be liable to make compensation.

I have heard that HR are concerned about the drive to move consultants’/contractors’ status to “employed” if there is a high likelihood that the firm will then let them go in 12 months or so. Not only does that make a lot more work all around, it can also tarnish the brand image HR promote to real, permanent hires.

Now Procurement love a single process and supplier comparability. They have struggled to bring the world of consultancy under control – with mixed success – so a move to the use of a small number of umbrella companies has a certain appeal. Or maybe even a shift to greater off/near-shoring.

Operational and Change Management primarily want the right/best quality of resource for the job, subject to budget and headcount. The fact that most of the available options risk significantly diminishing (typically -20% to -40%) the take-home for consultants/contractors it is likely that there will be a reduction in commitment and quality as each consultant/contractor is forced to reassess if the current offering is attractive enough. At the very least, it will and already is creating a churn in resources that erodes continuity and efficiency.

Finance and the CEO are concerned about the perceived health of the company and are pursuing costs and headcount reduction strategies. Not surprisingly, they are not happy with the prospect of lifting the resourcing cost (to remain attractive) and potentially increasing headcount as contractors/consultants are moved onto the payroll.

In short, even without considering the positions of HMRC and the consultants/contractors themselves, the stakeholder map for IR35 changes with a company is clearly a tangled web. I guess the solutions selected will tell outsiders a lot about where the balance of power is within an organisation.

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  • Aaron Allen

    The new IR35 rules are confusing

  • Scott McAleavy

    IR35 will cause enormous damage to contractors and the wider economy.

  • David Burt

    Poor finance contractors

  • Chris Hoppman

    Many firms are unsure about how to abide these new IR35 rules

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Ian J Sutherland 

Business Change Expert

Ian J Sutherland is a highly skilled director with expertise in governance, partnerships and regulation and almost four decades of experience serving as a powerful catalyst for change for organisations of all sizes and sectors. He thrives on identifying areas for innovation and improvement, forming effective strategies to drive efficiency and create bottom-line results. He has a proven capacity to serve as a bridge between organisations and functions, creating unity and operational coherence. A personable and creative leader, with a unique insight and the ability to see the big picture and provide constructive challenge, he writes on many matters including the delivery of change in today's world and is an opportunistic photographer who seeks to capture images that interest him. He enjoys good beer, good company and good music - not necessarily in that order.

   

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