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Can Private Sector Rail & Infrastructure Businesses Prepare for IR35?

IR35, IR35 guidance, Rail industry and IR35...

It’s well known that IR35 impacted the public sector and rail industry back in April 2017, with off-payroll workers forming a huge part of the workforce. 

Rail and infrastructure projects need a flexible workforce, so when reforms hit the public sector, many off-payroll workers left their direct contracts with Rail operators, choosing to work for private sector Rail consultancy businesses that fell outside of scope.  

In this article we tackle the important question: how can private sector consultancy businesses working in the Rail and Infrastructure sectors prepare for IR35, minimise their costs, and reduce the risk of workforce shortages?

We look at mistakes made in the public sector, the overall effects of reforms, and what solutions private sector businesses should be considering as they prepare for these changes.

Blanket IR35 policies 

How did public sector IR35 reforms affect the Rail industry?

Many businesses such as HS2 and Network Rail were reported to have introduced a 'near blanket' approach to assessing contractors within scope of IR35. In fact, a recent investigation by ContractorCalculator found that 99% of Network Rail contractors were deemed to be within scope of off-payroll rules in 2018. 

Unfortunately blanket IR35 policies have been commonplace, with FCSA data suggesting only 24% of public sector organisations have introduced proper IR35 assessments, with Transport for London as a notable example. 

Has the Rail industry been impacted by IR35?

According to a factsheet produced by ContractorCalculator, 71% of public sector projects were delayed or cancelled in the aftermath that followed IR35 changes. In particular, National Rail, HS2 and The NHS have all experienced difficulties, while TfL added a three month project delay due to a shortage of contractors.

APSCo have also investigated the effects of IR35 on the cost of using contractors. Their survey of recruiters reported that 70% had experienced a drop on public sector contactors. Businesses have felt much of the financial affects, with some contractors understandably raising fees by an average of 15% to cover the cost of working inside of IR35.  

As a result of the changes, many contractors have chosen to work exclusively on private sector projects. However, as of April 2020, the changes will be implemented into the private sector, leaving few alternatives for off-payroll working in the UK. 

78% of APSCo participates surveyed agreed that the extension of IR35 off-payroll rules to the private sector will have an impact the ability of the UK economy to source a flexible workforce. 

IR35 guidance: what is the solution to IR35 in the private sector? 

As a private sector business you must ensure that your business is prepared for the changes that lie ahead. Our IR35 guidance includes 3 main areas that businesses should be considering: 

  1. Educate your business on the issue. 

    Our group has been working closely with APSCo, attending numerous discussions and forums to understand the legal complexities, helping to produce IR35 guidance for our clients. You must not only educate your management team, but HR and Line Managers too. Keep the conversation open and honest. 

  2. Fully detail and understand your contracting workforce. 

    This can be easier said than done when working on large scales across multiple locations and projects. Technology may be needed or a team that is dedicated to assessing and documenting this information, which could push your budgets higher. However, there is another way; we have produced detailed documentation on how to scope our client’s contractor workforces, ensuring that each is tested in line with HRMC legislation. This minimises the need for extra in-house resources by working in collaboration with our team. 

  3. Account for an increase in workforce budget in 2020. 

    Once you understand the scale of your contracting workforce that will fall within scope of IR35, you can start to work this into your future workforce budgets. It’s estimated that about a third of the contracting workforce will fall within scope of IR35, with the proper assessment, but each business will differ depending on the type of contractors they require. 

Need help with an IR35 solution? 

The contracting landscape is going to change in April 2020 come what may, so it’s essential that the private sector is prepared for this. 

If your business is looking for IR35 guidance, you can contact Andy Rowlands on 0161 507 8374 or email andy.rowlands@talascendint.com to discuss solutions.