Tech recruiters put brave face on IR35 reform, as Hays warns of irrevocable change

IT contractor recruitment agencies are putting a brave face on IR35 reform, despite quietly admitting that the changes will affect the market anywhere between one year and irrevocably.

Hays Technology told ContractorUK that end-users are better prepared this time for the new off-payroll rules, saying 34% were “very prepared” last time around versus 41% today.

First Point Group told ContractorUK that end-users were not blanketing “in general,” but are instead adopting dispute processes that they are “genuinely open to hearing [PSCs’] input to.”

And VIQU told ContractorUK it was actively trying to educate end-users still unaware of the IR35 changes, even though half its clients were already open to making a “fair assessment.”

'The same old organisations banning PSCs'

But to a listen to a contractor who has retired, partly thanks to the IR35 furore, the sense of change since last time around – when IR35 reform was scheduled but delayed – sounds almost false.

“I think your source was right in their assertion that the same organisations are imposing bans on limited companies this time around,” said the contractor, who worked in IT for 45 years.

“It’s also partly the government’s fault. They’ve allowed HMRC to scare the world into these new rules with stories about companies becoming liable for punitive tax demands for making mistakes with no right of appeal, either for them or the contractor”.

He also said: “Had [officials] emphasised that the April reforms were not intended to impact genuine suppliers of services, we wouldn’t be heading for a situation where a significantly [sized] workforce will end up with zero rights of any kind”.

'Bans still in place'

Colin Morley, director at Hays, indirectly agrees with the veteran – in so far as the FTSE-listed recruitment firm’s stats confirm that last year’s banners of PSCs are largely this year’s too.

“A fifth of [hiring companies] say they have previously implemented a PSC ban in response to the original IR35 reform date. Sixty per cent say this ban is still in place,” he said.

Similarly, at VIQU, boss Matt Collingwood caveated that the half of its clients open to making a fair assessment -- so not blanketing, say they will be doing so via HMRC’s CEST.

'Running CEST with a predetermined outcome'

The HMRC tool is widely accepted as not being fit for purpose and long-seen as favouring inside outcomes but worse still, he says some firms are apparently deciding IR35 status pre-test.

“We’ve heard that there are some organisations, not necessarily in the sectors which we supply, which are doing CEST assessments but with a predetermined outcome in mind.

“Such end-client organisations are apparently making it clear that they will answer the CEST questions with their contractors, albeit only to find the worker inside IR35,” he said.

'Hard to adjust fees'

Where contractors get a ‘caught’ determination, some clients are willing to increase rates but “others are not”, according to First Point Group’s London managing director David Taylor.

“[Some of those contractors not being given increases] have contracts in place with their clients which contain fixed pricing [clauses], which make it hard to [adjust fees],” he said.

Significantly on pay, Mr Taylor believes the UK contractor market will eventually follow in the footsteps of its overseas rivals where similar labour reform has occurred.

'No pay reflection for a year -- or two'

Yet not for a while, and maybe not even in 2021 or 2022.

“I think as in the US and for example Germany, [contractor] rates [in the UK] will gradually rise to compensate for the new inside IR35 working practices.

“But this may well take a year, or even two,” he cautioned, “as [both IR35 and] covid flushes out of the system.”

'We expect permanent change'

Hays also sees the pandemic and the new off-payroll rules as a dual pressure, however it is the April 6th framework which will prove the game-changer, altering the market for good.

“[As of] now, there are some organisations who are continuing with blanket bans. We expect to see a permanent change in the skilled contingent market as a result,” said Mr Morley.

“However it can’t be solely attributed to IR35. Covid and Brexit have also played their part.”

'Now outside IR35, I'd never go back to inside IR35'

A PSC last night implied that its activities over the last eight to 10 months (which saw both the pandemic and the Brexit deal occur), had been entirely coloured by the off-payroll rules. The company’s owner says his future plans are too.

“I’m now in another contract, outside of financial services, on the same rate as my previous banking role, outside IR35 and 100% remote [working]. I consider this a marked improvement and it’s enabled me to move back to Scotland.”

The owner continued: “It’s highly unlikely that I would take an inside IR35 contract, out of principle. My plan is to use this year and the current contract income to diversify and leave contracting for good.”