The IR35 legislation was first introduced in April 2000 as an attempt to ensure that companies and contractors alike were paying the appropriate tax, and that as employers, businesses were adhering to their responsibilities to their employees whether they were officially called employees or not. These off-payroll working rules applied to ‘contractors using a limited company to trade’ where ‘if it were not for their limited company intermediary, they would otherwise be employed by their client’.
In the past, on occasion, contractors, who were employees by everything but name, and who didn’t appear on the payroll, would be employed, allowing companies to avoid paying certain taxes. Moreover, companies could avoid offering all the perks of being a full-time employee to so-called contractors, saving the company money, while taking advantage of workers.
In theory, then, it makes sense to have the IR35 off-payroll working rules, which should help to ensure that companies and contractors pay the correct tax, and that all employees are treated fairly. However, since its implementation, it has hit freelancers, contractors and businesses hard. Many companies in the public sector now refuse to hire contractors and freelancers, for fear of being caught out by the IR35 rules, since it’s not always clear whether a contractor is classed as ‘in’ the IR35 or not.
The 2020 IR35 reforms are set to hit the private sector in the same way, and ‘large-sized private sector clients will be responsible for deciding if the rules apply’, making companies responsible for deciding if contractors fall within IR35. So, we can assume that many companies in the private sector, in the name of self-preservation, will reduce the amount of outsourcing they do, and will work with contractors and freelancers less and less. Not only will this reduce the volume of work that freelancers and contractors receive, but it will affect companies in the private sector, which may not have the resources or the workforce to carry out certain projects successfully, or at least as well, as if they had been able to continue using contractors without worry of IR35 clap-back.
Thankfully, there are ways to outsource talent, and gain access to fully equipped workforces, for a number of tasks and projects — particularly technical tasks — without having to worry about whether contractors or freelancers are considered to fall ‘in’ the IR35 or not.
TheHIVE aims to address this problem through a novel resource-sharing setup. It is a platform that makes use of B2B collaboration, allowing vetted and non-competing businesses to benefit from one another, without the worry of the new 2020 IR35 reforms. Companies which have tasks they need to complete, and for which they would typically hire contractors or freelancers to carry out, can be matched through TheHIVE with the right workforce on offer from another company. This extends past any limitations of their own workforce. In this way, companies can still outsource talent without the worry of new off-payroll working rules by simply “hiring” another firm to provide the specialist resources they need. Their match would basically be turning themselves into a consultancy to deliver a particular task for a limited time to help better manage their resources’ costs.
Companies can benefit from resource-sharing platforms such as TheHIVE as a viable alternative to using contractors and freelancers, even without considering the pressure on businesses, pending the final IR35 decision. In many cases, using the workforce of another company can ensure a higher quality of work produced, since the employees of that company have already been pre-vetted based on their skills, abilities and relevant experience. By embracing B2B opportunities, companies can benefit from resource-sharing, allowing companies to enjoy sustainable recruitment benefits and increase revenue and turnover. At the other end, companies can benefit from developing their staff, especially those working on a mid-to-senior career progression.
In this period of economic uncertainty, businesses in the private sector can’t afford to delay preparations for the 2020 IR35 reforms, since the government has confirmed that they are going to be enforced in April this year. During this time, companies will need to decide whether they keep working with their current contractors and freelancers, whether any changes need to be made to their contracts, or whether, like many public-sector businesses, they’re going to stop using contractors altogether. If so, a platform like TheHIVE could be a godsend, to ensure that companies can continue to perform at the same level of productivity, in spite of the changes to the IR35.