The impact of off-payroll working

Author: James Poyser, CEO, inniAccounts

The UK is facing a £2.2bn productivity gap in the first half of 2020 as contractors leave firms in their thousands, in response to blanket bans on Personal Service Companies used by the self-employed to run their businesses (PSCs) and unfair IR35 assessments.

The unprecedented turnover of self-employed contractors is due to the high levels of mistrust contractors have in HMRC – 91 percent don’t trust HMRC’s policy and believe they will start retrospective tax investigations. Contractors would rather leave than move from outside to inside IR35 with the same client.

According to the research by inniAccounts, 23 percent of contractors have seen a complete PSC ban come in, with a further one in five being deemed inside, with many still waiting to hear their fate.

Only six percent of contractors think the assessment process at their client was fair and transparent, and just 13 percent have been given as Status Determination Statement (SDS). Following HMRCs new advice issued earlier this month this would put the majority of businesses at risk of investigation.

The consequences of the unfair approach taken by companies will be far-reaching as 85 percent of programme and project managers state that clients do not have sufficient mitigations in place to cope with contractors leaving, and over half (52 percent) say the scale of the exodus is far greater than their clients expected.

Projects are predicted to fail to meet regulatory deadlines leading to fines, or incur hefty penalties for late delivery, putting revenue and reputation at risk. In fact, the study found almost six in every 10 projects will fail to be delivered in time. Other consequences include delays to new launches (44 percent), and digital transformation projects (50 percent) and customer projects (63 percent) being put at risk.

The result of banning PSCs and unfair assessments is a cause for economic concern as 47 percent of contractors witness offshoring at scale. 10 percent say their client is moving hundreds of roles and four percent say thousands away from Britain as companies scramble to keep projects alive. 40 percent of contractors say their client is facing diminished competitive advantage as a result of IR35 decisions, with banking, retail, and defence among the worst hit.

Only a sixth of project managers say that the board is starting to pay attention to the ramifications and realising that the decision by HR and supply chain teams to ban PSCs is at odds with company strategy.

Worryingly, the uncertainty is also damaging people’s quality of life – 51 percent say they are just about coping but are worried about where the crisis will lead. A third say it is now definitely affecting their mental health, with four percent already going to their GP about anxiety and one percent to talk specifically about suicidal thoughts.

inniAccounts and the OffPayroll.org.uk team will share their expertise on off-payroll working and IR35 at Accountancy Age Transform (AA Transform) on 12 March. To claim your complimentary pass, please, use discount code “inniAAT” when registering here.