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How will IR35 impact your data project – and what can you do about it?

There are many things to consider when running a major data project. Weighing up the long term benefits over sometimes considerable short term expenditure can cause project managers sleepless nights. But come April 2020, many businesses will be asking themselves whether they can even afford to keep their project going. 

The latest factor to consider is IR35, which might sound like a secret branch of the security services, but is in fact a piece of HMRC legislation that will affect many thousands of companies and 230,000 freelance contractors. It aims to deal with the problem of ‘deemed employment’, the practice of using workers on a self-employed basis, often through an intermediary company when permanent employment would be more appropriate. Using these ‘disguised employees’ can save companies considerable sums in tax and National Insurance contributions, and deny workers of employment rights. Under the new arrangements it is up to the employer to assess whether anyone working for them falls within the bracket of IR35. 

On paper this sounds like a fair way of tackling tax dodging and unscrupulous employment practices. But in the public sector where IR35 has already been rolled out many IT projects have been put on hold due to fears over rising costs and investigation by HMRC. Understandably the legislation has caused considerable trepidation across the business world. A survey by Be Digital UK found that four out of ten businesses are considering phasing out contractors altogether. The result of this could see many IT projects grind to a halt.  

What can you do to lessen the impact on your data project? 

The rules surrounding who does and doesn’t fall inside IR35 are rather opaque. There is no one definitive rule, rather a number of questions that you need to answer to assess a contractor’s status. Many employers remain concerned they may still fall foul of the legislation. The most foolproof way of ensuring you avoid the IR35 trap is to make everybody employees. Of course this is a significant long term investment, and could leave you with the additional problem of what to do with them once a project has come to an end. 

Terms of employment 

A key thing to consider is whether the role a contractor fulfils falls firmly within the parameters of the project they have been employed to do. It is often common practice for people to shift around as projects change. Contractors can find themselves on the organisation chart next to regular staff and being moved to different parts of the business. This is definitely not OK under the new rules. 

Milestones 

Project based work, particularly in IT is commonly based on milestones, rather than days worked. Projects billed on milestones are great for ensuring that contractors are clearly delineated as contract workers, rather than slipping into the area of ‘deemed employment’. 

Think big 

Peace of mind can come from working with a large consultancy who can guarantee they only use their own people; this circumvents the IR35 headache for the client. This has been the go to solution for many public sector organisations, but it’s one that comes with a considerable price tag. 

Think small 

You could reach out to smaller IT consultancies, as under the new legislation businesses employing fewer than 50 people and turning over less than £10.2 million annually will be exempt. If they need to hire contractors the rules won’t apply to them. Furthermore, they are likely to offer significantly lower costs than the big consultancy firms and can still deliver great value, especially for specialised pieces of work. 

Undoubtedly the introduction of IR35 will cause anxiety, particularly in the short term, about the viability of certain projects. There is no single best way to deal with the new IR35 legislation and ultimately the right choice for your data project will depend on a variety of different factors, however if you would like to speak to Snap Analytics to see how we can help then please get in touch: 

enquiries@snapanalytics.co.uk

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