Is the Technology Sector in Turmoil Ahead of IR35 Tax Reform?
Six months before the legislation is due to be overhauled, there remains a distinct lack of understanding over IR35’s potential impact.
Workers in the tech sector lack an understanding of imminent changes to IR35 tax legislation, scheduled for April 2020, a survey has revealed.
HMRC’s planned expansion of IR35 will require self-employed tech workers to adhere to more stringent income regulations when implemented next year. However, research from Scottish recruitment consultancy Be-IT suggests the legislation poses a “significant threat” to the IT sector’s ability to function properly.
Under the reforms, medium-to-large private sector organisations will take responsibility for determining whether the contractors they engage with should be taxed in a similar fashion to salaried employees or off-payroll workers.
Currently, it is down to contractors to self-declare how they think they should be taxed. Six months before the legislation is due to be overhauled, though, there remains a distinct lack of knowledge over its potential impact, which Be-IT claims “threatens to put a straitjacket on the labour market”.
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Insights from the report show that more than one-quarter (28%) of contractors are unaware of who is responsible for determining if their work falls under the new rules. Additionally, only 25% of those polled said they were content to remain as contractors after the legislative changes – with the rest either looking for permanent employment (31%) or unsure over what they will do.
Almost half (44%) of employers believe that the legislative changes will force current contractors to look for permanent employment, while just 11% of employers are preparing for an increase in contractor costs.
At the same time, 89% of respondent employers told Be-IT also think contractors will pay more tax following the implementation of IR35.
Commenting on the IR35 changes, Be-IT CEO Gareth Biggerstaff warned of “significant consequences” if awareness and understanding of the legislation continue to stagnate.
“With so little time until the change in legislation, there is a massive amount of work to be done. Our survey shows there is a lack of planning and understanding around IR35 and that will have significant consequences if nothing is done,” he said.
“In a post-Brexit world, the labour market will need to be flexible, but from the confusion surrounding the changes, the exact opposite is likely to happen. Action needs to be taken now by HMRC to avoid significant problems in the sector that will stymie progress,” Biggerstaff added.
In 2017, a similar shift in responsibility took place in the public sector and was met with widespread confusion. Nikola Kelly, managing director at Be-IT, said lessons from 2017 must be learned to avoid a repeat of the situation.
“It is even more critical two years down the line that the confusion is addressed, otherwise there will be problems, not least of which could be flexibility in the contractor market grinding to a halt,” she insisted.
“There is an obvious sense the changes will mean an increase in tax and cost, but little preparation for dealing with that or the fall-out.”