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How did IR35 affect the public sector?

Private-sector companies are braced for IR35 off-payroll reforms, set to be introduced on the 6th of April.

It was only in 2017 that the same legislation was rolled out across the public sector. But in what ways did it impact companies in the sector at the time? And are we likely to see history repeating itself come April?

 

How IR35 impacted public-sector contractors

Of course any change as significant as IR35 will impact the affected companies. Perhaps the biggest shift for the public sector was with regard to contractors working on-site. There was a ‘compliance crackdown’ to ensure contractors deemed outside the legislation were working to the necessary terms, for instance when it came to supplying their own equipment and the right of substitution.

It certainly altered day-to-day working practice, but in no time at all the legislation became the norm – albeit a ‘new norm’. Companies and contractors alike soon slotted into the new way of working, and this is exactly how I see things panning out in the private sector.

 

Don’t panic

If I had to issue just one piece of advice to private-sector companies and contractors working in the sector, it would be not to panic.

We can learn valuable lessons from the implementation of IR35 in the public sector in that the dust settled, so to speak, very quickly. There’s bound to be some uncertainty initially as companies and contractors adjust, and the nature of assessments may create more work for both parties, but it won’t be long before the legislation is part and parcel of everyday working practice.

When I say ‘don’t panic’, I mean that companies shouldn’t bury their head in the sand and pretend that it isn’t happening. Some of the organisations taking this approach have made the decision to opt for a blanket inside approach – assessing every contractor who works for them as inside IR35, even when the majority of contracts will sit outside.

The risk of a blanket approach is that there will be many contractors wishing to remain outside the legislation. This means companies could lose highly-skilled contractors to competitors committed to assessing workers on a case by case basis.

 

Stay informed, start the conversation

I’d advise any private-sector company apprehensive of the reforms to spend as much time as possible educating themselves on the legislation, its implications and on HMRC’s CEST tool for assessing contractors. Because the more informed they are, they are more confident they’ll be when the reforms take effect – and the less likely they’ll feel pushed into a blanket decision which could see result in them losing out on top talent to drive their projects.

What was encouraging to see in the public sector at the time was the many companies committed to educating their contractor base on the changes. They were having honest, open conversations with them on the legislation, its pitfalls and on the tool, while some even hosted informative workshops. Their efforts helped to put contractors’ minds at ease, helped to make sure they were on the same page and prevented any knee-jerk decisions.

Talent also played its part in educating and consulting public-sector companies and contractors on IR35, which places us in the best position to now help the private sector navigate the reforms. Get in touch to find out more.