IR35 private sector changes may benefit recruiters

The tax status change of self-employed people working in the private sector has been derided as a revenue raiser, amid fears that the legislation will have the same negative impact it had in the private sector.

Contracting businesses face the possibility that private sector companies will shun their services because of potential future tax demands, leading to reduced market competitiveness and increased employment.

But what about the recruitment industry? Volcanic’s Co-Founder Neil Pickstone predicts new opportunities:

He commented, “When the Off Payroll Rules (IR35) were launched in the public sector, they undeniably caused chaos and confusion, but one thing that happened was that we saw a shift from temporary to permanent roles. This led to an increase in fees for recruiters placing permanent staff and opportunity for consultation, strengthening relationships with clients.

“And now what we have, twelve months on from the IR35 status change (where the client rather than the contractor determines IR35 status) starting to bite in the public sector, is data. Published accounts by businesses and contractors in the public sector, as well as freedom of information requests, will give us facts rather than speculative figures on tax implications, the effect on contracting businesses and the revenue generated.”

He added, “According to figures from the HMRC, IR35 will help claw back revenue from personal service companies, which costs the exchequer £1.3bn a year. It will be interesting to compare this figure to the published data.

“This move presents the opportunity for recruiters to consider a move towards acting as a professional employer organisation (PEO) or an umbrella model, becoming an extension of their client’s company to handle HR functions, ensuring legal compliance and picking up activity such as candidate onboarding and payroll.

“If a similar move towards permanent roles happens in the private sector, a PEO model supported by the right technology may be an attractive option for placing staff as part of a longer term talent hiring model.”

Jeanette Barrowcliffe, Finance Director at Meridian Business Support, shares her point of view, “I’m astonished that the government has excluded small businesses from the Off Payroll Rules (IR35 changes) to be rolled out to the private sector from April 2020. I obviously understand the argument that the administrative burden may hit smaller businesses harder, but if the goal is to create a level playing field then this does the exact opposite.

“Rather than introduce standardisation across the board, the government has created a clear get-out. Plus, by delaying its introduction until 2020, there’s clearly time for some companies to seek out ways to implement this to their best advantage, rather than necessarily embrace the spirit of the law.

“At the start of next year, we’ll be able to see the publicly available data from the public sector changes made in 2017, as PSCs will have to have filed their tax returns by then – and I think the evidence will speak volumes in terms of the revenue generated. I can’t imagine it will be anywhere near the figures quoted by the HMRC. There will also be more visibility on the claims being made by contractors.”

To find out more about contracting please contact Jaime on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.