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IR35 - could this change the contractor landscape in Rail?

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IR35 - could this change the contractor landscape in Rail?

 

Phillip Hammond announced in the budget last week that the expected rollout out of the IR35 legislation into the private sector will be further delayed to April 2020. It is a move that was widely expected due to ongoing concerns surrounding how well the scheme has been executed into the public sector. 

 

The IR35 legislation was first introduced with the aim of eliminating the avoidance of contractors making PAYE tax and National Insurance contributions via the use of intermediary companies. It was initially executed from April 2000. However it was the April 2017 reform that really brought the legislation to light. As of this date in the public sector it became the responsibility of the employer to determine whether a worker is inside of IR35 regulations. The execution of this has been met with widespread criticism and problems highlighted such as people leaving the public sector creating skill shortages and an increase in the cost of contingent workforce without additional productivity. 

 

Transport for London notably announced the delay of repairs to the Underground systems due to the loss of many contractors leaving them with insufficient resources to complete the work. The Rail sector is likely to be impacted by any future changes to IR35, but just how is hard is difficult to comprehend. It must be considered that as an industry it is unique in the presence of both government funded and private organisations. Taking this into account we have speculated on some of the impacts it could have should IR35 be executed in the private sector as well. 

 

Return of contractors to public sector

Being a professional contractor in the Rail sector has the benefit of being more mobile between the private and public sector. Often is the case that if you are associated with a private organisation they will have a strong portfolio of government funded projects. As a result the risk of returning to the public sector and not being able to get out is limited. Should tax restrictions be restricted across both avenues then workers could become more flexible to working in the public sector again.  

 

Increased creation of consultancy businesses

The Rail industry already has a structure in place that sees a lot of sub contractors in the market place. Well networked individuals in the sector could be encouraged to form alliances that win specific projects delivered as a unit as opposed to being individual employees of the company that will be delivering the work in an official capacity. This could eliminate the IR35 decision and solve contractor sourcing issues. However there is much legislation and complexity to consider with this approach. 

 

Increase in permanent employees

The nature of a large proportion of rail projects typically presents longer term opportunities. Therefore increasing the likelihood of employment falling into IR35. Should there be no avoidance of this or taxable benefits to doing so it may encourage the existing workforce to consider staff jobs more seriously when presented. However whilst this could be cost effective it is important to consider the nature of the industry being highly project focused. The change in landscape, nature and location of work means a flexible workforce is often more suitable.  

 

Less commitment from workers

It is widely reported that one of the biggest risks of falling inside IR35 is being seen to work in the same place for a long period of time. Currently avoidable in the private sector and likely influencing workers leaving the public sector should the legislation be liable across both sectors this could change. Workers may prefer to maintain contractor employment and stay outside IR35, therefore be encouraged to choose to negotiate short term contracts or simply exercise the flexibility of leaving a temporary employment contract early. 

 

The above is simply speculation but something to consider as an existing contractor or employer of contractors, particularly in the private sector. With the new legislation unlikely to be introduced until at least 2020 you may not feel now is the time to act but it could influence your long term thinking as an employee or employer. 

 

At Talascend we work with both private and public sector organisations at sourcing both permanent and contractor professionals to the rail sector. Should you be a candidate seeking opportunities or client looking for additional resource please do not hesitate to get in touch at manchester@talascendint.com