The implementation of the widely debated IR35 changes has been postponed by the UK government and will be reintroduced on 6 April 2021.
This is a significant policy departure from the UK government which will have far-reaching implications on the UK recruitment market. First and foremost, the postponement will provide relief to the UK economy, which is struggling to manage the economic and public health crisis caused by Covid-19. The delay will also ease the concerns of the contracting community where varying degrees of preparedness risked endangering the livelihoods of hundreds of thousands at a time of domestic market fragility.
In our ‘Human Capital Market Outlook 2020’ review, we highlighted IR35 as a key factor that would affect M&A activity in 2020, with IR35 cited as the most pressing medium-term concern to private sector businesses using independent contractors. Recent months saw corporates doubling their efforts to insulate their business models from the potential downside risks that the tax changes would pose. The Office for National Statistics reported that the number of temporary employees was down 6.8% for the three-month period from November to January, despite the industry’s opposition to the changes.
The news of the postponement presents end users and suppliers that have not yet implemented effective mitigation strategies with valuable time. Exposed corporates should seek to streamline their processes and work through the changes and the potential effects that IR35 could have on trading performance. An additional twelve months of guidance may also lead to much needed clarity around the issues that have added to the uncertainty around the legislation, including HMRC's CEST tool and the review process itself.
Suppliers and users of Personal Service Company ("PSC") contractors have made significant efforts to accommodate IR35 and reverting to old, soon to be outdated processes for a short period is unlikely to be an attractive route to explore. Those that have transferred, or are in the process of transferring contractors from PSCs to umbrella arrangements will need to give due consideration to whether this can be reversed in a way that minimises the potential for tax avoidance and non-compliance with employment law.
As governments and central banks continue to introduce significant fiscal and monetary support to the global economy, we believe that the M&A market will be buoyed by further easing of monetary policy seeking to stabilise both equity and capital markets.
Geraint Rowe, Partner at Gambit Corporate Finance commented:
"Recruiters should view this delay as a specific response to the anticipated impact of the Covid-19 virus and not interpret this as a first step in a decision by the government to cancelling IR35 implementation in the private sector. Our advice is that those recruiters affected by the regulations should use the extension wisely, continue diligently with their assessment and implementation plans and not risk arriving at another “cliff edge” in 12 months’ time."
Simon Marsden, Director at Gambit Corporate Finance added:
"Demonstrating preparedness and resilience for IR35 implementation will remain a key prerequisite for funders and investors. Whilst significant time and resource has been expended by a number of businesses in getting ready, those businesses who are already compliant will continue to attract appetite and benefit from premium valuations. For those not fully prepared, the delay will give them time to do so before undertaking a transaction."
If you would like to discuss the impact of IR35, or any other issue affecting the strategic plans of your business, please contact us. We would be happy to arrange a call or video conference to discuss and share our thoughts on how Gambit can assist you through this crucial period of business planning.