The government is launching their revisions to the off-payroll working rules (often called IR35) in April 2020. The effects of the revision will have major consequences for the construction industry, where temporary workers are a common way to plug companies’ skill gaps, especially for project-based work. But what exactly are the off-payroll working rules, and what is the effect of IR35 on construction? Here’s our take on the IR35 implications for contractors and the construction industry.
Please note, Maxim Recruitment does not provide legal advice. The following information is provided as helpful guidance only and should not be taken as confirmation as to whether you do or do not fall within IR35 rules – please always get specialist advice from HMRC or other qualified advisors if in doubt.
What Is IR35?
IR35 is a set of rules that can apply if a worker provides their services through an intermediary. In construction, this is typically contract staff who work on a temporary basis for a company either through their own limited companies or through umbrella companies. Because of the temporary nature of projects, roles such as quantity surveyors, commercial managers, claims, delay, dispute and arbitration experts are often employed on a contract basis, though other roles are common in contracting too. This arrangement lets construction workers work in the most tax-efficient manner.
The IR35 rules make sure that workers who normally would have been an employee are paying the same tax and National Insurance contributions as employees. For example, if a quantity surveyor is contracted through their limited company to work a 40-hour week in an office across a range of projects for an unspecified amount of time, HMRC may well take the view that they provide the same service as an employee would if they were employed directly.
What is Changing About IR35 in Construction?
IR35 is nothing new – it’s been around for some time. However, before the 6 April 2020, clients in the public sector were responsible for determining their contractors’ employment status under IR35. In the private sector, it was the intermediary company’s responsibility to determine their own employment status for each contract – essentially, contractors would confirm that they are self-employed.
From the 6 April 2020, this will change. Public sector companies will still be responsible for determining a worker’s employment status, but now so will medium- and large-sized private sector clients. Or, in other words, the vast majority of the larger construction companies and consultants will now fall under these rules. However, for small private sector companies employing temporary contractors, it will remain the intermediary company’s (the self-employed person’s) responsibility to determine their employment status under IR35.
What is the Effect of IR35 on Construction?
For employers, using temporary contract staff means there’s no need to pay National Insurance contributions for an employee, so any companies using contract staff are likely to come under increased scrutiny. However, the real effect of IR35 on construction is that temporary contract staff will become a potential liability for a company. The increased cost of temporary staff – from the increased National Insurance contributions – will make most employers question whether it is more beneficial for them to employ staff directly. By so doing, companies gain the benefits of salaried staff – such as increased loyalty, investment in CPD and training, and typically lower employment costs – with no risk from an HMRC investigation.
The IR35 implications for contractors mean that many will be reclassified as employees and lose the tax-efficiency they’ve previously had. For some, employers may insist that they become a permanent staff member in order to stay in their positions. The reality is that many contractors who were effectively acting as if employed will now need to be employed in order to stay legal. For many contract staff such as quantity surveyors, claims, delay, dispute and arbitration experts, it may well mean that now is the time to find a good permanent job in construction.
Don’t Wait Until March to Act
If you are currently working as a contractor and think IR35 may apply to you from April 2020, seek professional advice regarding how the changes will affect you. It’s also worth getting in touch with a recruitment specialist like Maxim Recruitment sooner rather than later for help finding a permanent role. Rather than waiting until the last minute when every other contractor is looking for a permanent job, we can help find the right role for you across our large network of employers. We specialise in a range of quantity surveying, claims, dispute, engineering, planning and professional construction roles, so send us your CV to be the first to hear about relevant upcoming vacancies.
About the Author
Construction Recruitment Director, UK & Canada
I am responsible for the Maxim Recruitment office in the UK where our team of recruitment consultants specialise in the recruitment of quantity surveyors, commercial managers, delay, dispute and claims consultants for civil engineering and building contractors and specialist construction consultancies.
I am also responsible for growing our recruitment operation in Canada and the USA where we are increasingly busy. I have over 20 years’ experience in construction recruitment and enjoy working on both contingency and search/headhunting assignments for our repeat clients.
Maxim Recruitment on LinkedIn: https://www.linkedin.com/company/maxim-recruitment