PRESS RELEASE - Brain drain could become a reality when IR35 comes into effect this April

about 3 years ago by
Ir35 Brain Drain 0321

Leading talent specialist, Head Resourcing is warning that the impending changes to IR35 legislation, combined with pressures imposed by Brexit, could result in a “senior and technical talent drought” at a time when we should be focusing on kick-starting the economy.

Changes to IR35 were due to come into force in 2020, but due to COVID-19, were pushed back a year. However, with the uncertainty and impact of the pandemic and Brexit on businesses across the UK, experts at Head Resourcing say it would have made more sense for the Chancellor to have announced a postponement in the recent Budget, until industry has reopened fully, perhaps later this year.

When IR35 first came into force in 2000, each contractor was responsible for assessing their own IR35 status and it was the individual’s limited company or agency who was responsible for accounting for any tax and National Insurance due where IR35 was applicable. The rules then changed in 2017 so that, in the public sector, the responsibility for ensuring IR35 was correctly implemented shifted from the contractor to the public sector body engaging their services. Responsibility remained with the contractor in the private sector.

The changes to the legislation, confirmed to be introduced in April, will mean responsibility for setting IR35 status and paying relevant tax will be passed from contractors to the private sector businesses engaging them – mirroring the public sector. This also means that the ‘engaging’ businesses will be held liable should HMRC decide status has been incorrectly assessed.

Charlie Wood, Head of Contractor Solutions at Head Resourcing, said: “Many of the companies we work with haven’t yet seen a significant impact so far in terms of candidate availability but it’s likely that will change when it is implemented in April.

“With most roles available expected to either fall ‘Inside IR35’ or be PAYE only, roles deemed ‘Outside IR35’ will be in high demand and are likely to attract the top talent. This is because roles deemed ‘Outside IR35’ essentially allow you to pay yourself a salary and withdraw further income as dividends (which are not subject to National Insurance contributions), whilst your limited company pays tax only on its profits at the corporate 19 per cent rate.

“It is likely that most contractors – especially in the interim and until we see an improvement in the economy – will grudgingly move to a PAYE model whilst looking out for other opportunities.

“With the deadline getting ever closer, there are a number of companies beginning to go through that assessment process right now and some had been clinging on to the hope that the Chancellor would push the date for the changes to IR35 back once again.

“Whilst there has been no reprieve, given the current state of the economy, the fact that we are still in the midst of the pandemic and the additional pressures and uncertainties added by Brexit, it seems to me to be irresponsible. It will add even more pressure to business and indeed to the majority of the contracting community who have already been massively neglected by the current UK Government’s COVID bail-out and support plans over the past eleven months.

“We are aware of a number of contractors who not only sought EU citizenship if they could but also moved abroad ahead of both Brexit and the IR35 changes coming into effect. With existing talent shortages already present and mounting, particularly within the Technology sector, there is a very real threat of exacerbating the situation further with additional ‘brain drain’ due to the combined Brexit / IR35 effect.”

Let’s talk

If you want to chat further about getting ready for IR35, please get in touch with Charlie over here. You can also visit our dedicated IR35 hub and read our IR35 preparation guide.

The information contained in this press release does not constitute business advice and should not be acted on as such. This content is based on our understanding in March 2021.

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