Concerns remain over IR35, a week before rules come into force

• Nearly a quarter of recruiters still have concerns about new IR35 reforms
• 50% of companies in the sector say the continuing effect of the pandemic is the biggest issue keeping them awake at night
• Growth and expansion remain high on the agenda for the sector.

Questions remain around the implementation of IR35, despite changes to the off-payroll working rules coming into force next week on 6 April 2021.

A survey of North West recruiters – carried out jointly by BDO LLP, NatWest and Brabners – has found that nearly a quarter of respondents (23%) flagged the introduction of the new rules as their main current concern.

The changes will see the transfer of responsibility from contractors to the end client companies to assess whether a worker’s employment status falls within IR35 – legislation that ensures that payments to contractors are subject to the same level of PAYE and National Insurance Contributions as employees. The reform will bring private sector IR35 in line with the public sector rules introduced in 2017.

As part of a joint event looking at the challenges facing the region’s recruitment sector, questions were raised around how the rule changes will impact those UK companies providing services via/to overseas affiliates, the impact on the construction sector and where liability for compliance with the rule changes will lie, as well as other potential tax and legal reforms that could hit the sector.

James Fieldhouse, M&A Managing Director at BDO LLP, said: “With less than one week to go until the introduction of the much-anticipated IR35 rule changes, it’s clear that there are still significant question marks amongst recruiters around the effects the legislation will have on contractors.

“While the continuing impact of the pandemic is the biggest issue keeping recruiters awake at night, according to 50% of respondents, the immediate issue of putting the off-payroll working rules into practice, particularly in regard to how it affects international contractors and clients, is presenting challenges for the sector.”

The online event also revealed concerns over the state of the economy, the ongoing fall-out of Brexit and how it will affect the sourcing of temporary labour, together with high-profile decisions, such as that of Uber in offering basic employment protection to UK drivers.

Compliance and new systems, together with business financing, were flagged as areas of development, as recruitment companies continue to contend with remote working and a potential influx of flexible working requests, together with an ongoing trend towards the use of technology. Nonetheless, the survey found that 86% of those surveyed intend to focus on growth and expansion in the next 12 months, despite the ongoing pressures of COVID-19.

Fieldhouse commented: “The sector faces a raft of challenges in the months ahead, yet it remains a resilient and agile sector focussed on growth; it doesn’t stand still. I am optimistic about the industry’s continuing recovery throughout 2021 and beyond.”

Simon Whitehead, Partner and Head of the Recruitment Sector at Brabners, said: “The outcome of the survey reflects what we’re seeing in practice. Due to the wave of challenges which businesses have faced in recent months, the time available to deal with the IR35 changes has been limited and, as such, businesses are still grappling with the IR35 changes as the implementation date looms. Notwithstanding the pace of change, many of our recruitment clients are focussing on growth, with lateral hires and targeted merger and acquisition conversations taking place. It seems as though 2021 will be a transformative year for many recruitment businesses.”