The long-debated changes to the IR35 Off-Payroll tax regulations have been in law for over two months now. In the run up to implementation there were countless predictions as to what impact the changes would have on businesses, Limited Company Contractors, and project delivery. In this article I examine three of those widespread industry predictions to see to what extent they have come true, and the impact the changes have had on organisations’ relationships with interim resources and their ability to deliver technology projects.
Prediction 1: Project Delivery Costs will increase due to increased rates demanded by “inside IR35” contractors
Despite being delayed by a year, some organisations, particularly within the Financial Services Sector, pressed on with pre-planned changes to the way they engaged interim resource with the well-publicised “LTD company contractor ban” starting from April 2020.
That caused a somewhat “false dawn” of minimal impact to IT project costs as the pandemic took a complete grip on the UK economy and firms, quite understandably, delayed, or cancelled IT projects and drastically cut back on consultancy and contractor spend. The offer of a 6-month project to a contractor would likely have been gratefully received in most cases – regardless of IR35 status. Working on a PAYE basis via an umbrella was an unwelcome, but begrudgingly accepted, evil for most – resulting in minimal impact to project costs.
Fast forward a year and two months and the story is very different. The World has adapted, the IT sector is once again booming and demand for IT project expertise is greater than ever before. Firms who are unwilling to adapt to IR35 are now finding it increasingly challenging to attract and retain the best possible interim resource without stumping up the costs required to deliver their projects – either by increasing contractor rates or procuring expensive consultancy support.
Prediction 2: Firms relying on PAYE contract resource will face delays to IT Project Delivery
Quite simply, there is no evidence that IR35 has been a primary reason for IT project delays… yet!
However, we are beginning to see a common trend regarding the increased challenge in retaining contractors who are either deemed “inside IR35” or not permitted to operate at their end client via their Limited Company. Competing firms who are fairly assessing and offering “outside IR35” contracts are understandably finding it easy to attract contractors. As the post COVID surplus supply of IT contractors diminishes, we are starting to see hiring organisations finding easy hunting grounds in companies who have a rigid “no PSC Contractor” approach. As this trend continues, it will inevitably lead to project delays as specialist knowledge and experience walks out of the door.
Prediction 3: Statement of Work (SoW) contracts will become “the new normal” in engaging contractors
SoW has been used within contracting for many years. In the US, it is the primary engagement model for IT contract workers and has been used increasingly in the UK long before most people knew anything about IR35. But for many, SoW is a new way of working as it has been seen to be the “silver-bullet” around IR35 that would solve all problems for contractors, agencies, and end clients alike – and therefore it was predicted by some to become the primary engagement model for firms engaging contractors.
Two months post Off-Payroll changes, and we are seeing there has undoubtedly been an uptake in demand for SoW. Most large recruitment agencies with significant contractor books have developed some sort of SoW offering. This is beginning to create a minefield for end clients as they try to distinguish between recruitment agencies that have created a true service offering with the ability to provide governance and assurance on well-defined, deliverables-based SoW engagements and those who have not. Making the wrong choice of partner firm can be costly and therefore organisations are rightly taking a cautious approach to engaging via this model – and whilst increasing in popularity it is by no means yet the new normal.
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